Lyft (NASDAQ:LYFT) is wrestling with a multitude of problems. Chief among them is profitability. Or, more accurately, a lack of profitability. And while that may not have been an issue early last year when stocks were flying to the moon, it is very much one now. In fairness to LYFT stock, it’s not the only unprofitable growth stock that Wall Street investors are shunning. There’s a legion of once-promising high fliers that have been humbled by shifting sentiments and a newly hawkish Federal Reserve.
While the monetary magicians at America’s central bank have yet to entirely halt their asset purchases, let alone lift short-term interest rates from zero, the market has already looked far into the future and baked in a much higher cost of capital. And doesn’t bode well for the likes of LYFT.
LYFT Stock: No Profits Means No Love
Since going public in early 2019, the ride-hailing tech company has reported earnings no less than twelve times. And while the quarterly losses have ranged widely, we’ve yet to see a single cent of profit.
That, all by itself, isn’t necessarily a death knell for a company. During specific periods, investors have found the mere hope of future profits sustaining. For example, in the first few months following the Covid-19 vaccine news, the Street began pricing in an economic rebound where travelers would return, bringing renewed demand for Lyft’s services.
What’s more, monetary policy was highly accommodative, with a long runway before rate hikes were even a possibility. Future profits are worth loads today if the discount rate is zero. This fact was undoubtedly one of the forces keeping growth stocks like LYFT afloat for so long.
Even if you knew nothing of the fundamental reasons for LYFT stock’s failure to lift, the price chart has been broadcasting warning signs to those with eyes to see. So let’s take a closer look at the weekly and daily time frames.
Warning Signs on LYFT’s Stock Charts
Short of one multi-month period of bullishness, LYFT has spent the entirety of its public life in a downtrend. It’s a depressing fact when you think about it. The long-term trend is sinking below a 50-week and 20-week moving average. Ever since the bullish bout ended early last year, we’ve seen an unending string of lower pivot highs and lows. Until the pattern changes, it’s impossible to have confidence in long trades. Consider setting an alert at $46. The resistance level needs to be breached for the long-term trend to reverse higher officially.
If you’re a bull seeking something to cling to, the downside momentum is slowing. But with the broader market in the throes of a correction, this is hardly a time to bottom-fish broken trends that are slowing. Instead, the safer bet is to wait for the trend and sentiment to change. Then pounce.
The daily view provides more detail to consider. Some stability has emerged in the form of an equal pivot high and equal pivot low. But, as I said, we need more definitive signs of buyers returning before I’d suggest going directional. The price remains stuck below all major moving averages on the daily chart.
The best trade is probably no trade here. If the slowing momentum on the weekly chart and attempt at a double bottom on the daily chart has you itching to bottom-fish LYFT stock, I would at least use a higher probability trade to increase your odds. Short puts should do the trick. Here’s the one I’d play if I had to.
The Trade: Sell the April $30 put for 75 cents.
On the date of publication, Tyler Craig 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.
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