I remember the days when unicorns were the hot topic on Wall Street. Now it’s AMC holdings (NYSE:AMC) and GameStop (NYSE:GME). Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) stayed private too long. Out-of-the-gate expectations were way too high and they fell apart after a brief hurray. Uber stock lost half its value by November 2019.
Things got a lot worse during the pandemic but that’s all in the rear-view mirror.
Miraculously Uber rallied as much as 370% from the 2020 low and it’s now still well above IPO highs. This is an important point for my long-term bullish thesis today. When a stock overcomes a prior failure point, more often than not it becomes support. In this case, as Uber falls into $45 per share, it should find buyers.
UBER Stock Has Support
In an age where machines do most of the trading, these technical nuances matter a lot. Specifically the action from May 10 establishes an attractive buy-able $43 level. Anything at or below that price would make for a solid long-term entry.
Meanwhile, Uber stock has to deal with the momentum in the stock market. Equities are on fire and the indices are breaking records. This leaves them vulnerable to potential corrections. If that happens, UBER could fall through no fault of its own. If $43 fails, it could lose another $9 from there. This is not my forecast but it is a potential scenario that exists.
I did not waiver in my bullish thesis through the tough times. Since the beginning, I’ve shared an honest opinion on good entry points and the potential trouble zones.
Because of the extrinsic risks, I should temper my enthusiasm now. Investors who plan on owning 100 shares, for example, should only buy at most half of them. Leaving room for error is essential for proper risk management. Usually when I take trades, it’s after I’ve done a lot of homework. With that comes conviction, but these days I have to infuse a healthy dose of skepticism.
We’ve never had a set of circumstances like this before. Almost everything that is happening now has never happened before. A big problem with the overall Wall Street bullish thesis is the amount of government assistance programs. There is an insanely huge stimulus that will run out this year. When that happens there will be a void in the demand for stocks. The higher we go before then, the larger the correction will be.
Caution Is Smart Near Record Levels
I know these are inflammatory comments, and I hope they never happen. In fact, the upside risk is just as dangerous. Shorting the indices now is difficult because the bulls are relentless. My message is to be bullish UBER stock but with moderation. Meme traders are betting big, winning big, and eventually they will lose big if they don’t adapt. This artificial tailwind will go away and the bulls may find headwinds they didn’t know exist.
I am not an alarmist by nature, in fact I thrive on it. My investment method of choice is to buy dips in quality stocks. UBER stock is one. It is hard to find many of these lately because everything is up so much and for so long.
Uber has solid fundamentals. I bet their goal is to become like Amazon (NASDAQ:AMZN). I see them becoming an aggregator of businesses rather than specialize in one area like Apple (NASDAQ:AAPL). The revenue streams have grown tremendously over the last four years. They still lose a lot of money but the statistics have improved a lot. Its price-to-sales is in line with AAPL and cheaper than Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT). Profitability comes later, since you can’t build an empire while skimping.
Path to Success Is Ahead
Uber management already did the hard work. Their app is probably on most phones in the world. They can pretty much implement whatever plan they want and succeed. Ubiquity is the secret ingredient, and they have it in droves.
The 2020 lockdown was an incredibly tough test for a company like Uber that depends heavily on moving people. The fact that they only contracted 24% in ride hailing is impressive. They had 94 million people actively use their services in Q4 of 2020. As the world reopens, these opportunities should expand exponentially.
Uber took the gig economy concept to the next level. They empowered drivers to earn an extra buck when they need it. Vilifying these efforts is wrong. I bought the dips on the California litigation headlines and I profited from them. I will do it again if it happens again because California is in the wrong. People need Uber services and the income they can earn from it on demand.
As much as I like the opportunity, going all in on Uber stock here is wrong. I don’t trust the markets at these altitudes and I’m leery of this price action in on Wall Street.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.