When the company’s name becomes a verb, it’s an indication of success. “Let’s Uber there” is a common statement among friends on the daily. Therefore, by definition Uber (NYSE:UBER) stock became one to buy on dips.
Thus, it becomes a matter of timing into positions depending on time horizon.
Successful investing requires a lot of research, a bit of logic and some luck. The modern traders can give themselves a huge advantage if they also sprinkle a bit of basic knowledge of charts. I don’t expect us to all be Elliott wave experts, but there are easy pitfalls we can avoid.
Chasing a stock into all time highs is never an obvious long term entry point. Case in point, those who chased UBER stock last February lost almost half their money. They didn’t pick a bad stock, they simply chose bad timing.
Currently the stock is still about 40% below the high watermark. Therefore, this is not an obvious potential mistake. Investors can initiate new positions into UBER stock with much more confidence. In fact, this is the mid point between it’s two all-time limits. It is now about halfway between the all-time high and low. As the old adage says, somewhere in the middle lies the truth.
UBER Stock for the Long Term?
Headlines aside, this would make for a reasonable entry point into UBER stock. However, this week management will report on its earnings.
As we’ve seen with Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) the reactions can be wild. The overnight price action on the earnings is mostly from emotions. We do not know what the masses expect, so the quality of the report is almost immaterial the next day. In the long term it will matter how strong the quarter was, but not necessarily the next day. We will get a preview from Lyft (NYSE:LYFT) first tonight. UBER stock will move in sympathy tomorrow.
Based on its fundamentals, Uber makes for a compelling long-term bullish thesis. They are aiming to have many businesses so not to depend on one industry vertical. Revenues now are 10 times the size of 2016 — and that is astonishing growth rate. All this while maintaining a low price-to-sales ratio under five.
Critics who complain about Uber’s profitability need to come off it. You can’t deliver this blistering growth while pinching pennies. Naysayers pressured Amazon for 10 years about its thin margins. And in the end, they were all wrong. While there are no guarantees Uber will be a second Amazon, it’s growth is just as impressive.
Stay Vigilant Short Term
Before we pile in long UBER stock at these levels, we must first acknowledge external risks. Investors on Wall Street are currently a bit nervous. The CBOE Volatility Index (VIX) remains unusually high. This is the byproduct of having a slew of negative headlines circulating the news tapes and refusing to abate. The topics are serious enough that these fears are somewhat reasonable.
On the one hand, we have headlines that could bring about World War III. On another, the Covid-19 virus is lingering and still affecting millions of people globally. Add to this that the central banks are embarking on efforts to squash inflation. The sum total of these nagging issues presents a strong psychological block to buying stocks.
Proof of this is the way markets fell into the close during Monday’s session. The bulls were in complete control then chose to throw the game at the end. Moreover, there is technical risk from losing the Jan. 24 lows. Should that happen, UBER could fall another 15% from there into another layer of support.
Regardless, UBER stock is now about the same levels of its earliest days. Back then it was a controversial one to own because of their excessive spending. Now that talking point has fallen into the background. I’ve written positively about it over a year ago and the price was about today’s level. It delivered profits back then, and I bet it can repeat performance.
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.