DoorDash (NYSE:DASH), a food delivery service has seen its shares be weak in 2022 with losses of nearly 25%, having rallied 27% in the past one month as a result of its fourth-quarter 2021 earnings. Has DASH stock bottomed in 2022? If yes, then it could be a great time now to start accumulating some DASH stock. However, I believe that DoorDash shares should not rise now so fast, and certainly not so easily. Here is why.
Analysts seem to be rather bullish on DASH stock on Yahoo! Finance, as the stock has a target of $167.80, on CNN the median price target for DASH stock is $161 and on Tipranks analysts forecast an average price target of $164.21. Taking the more conservative estimate target of $161, if this was to be achieved in 2022 it would represent a 45% gain from the closing price of $110.91 on April 7. It sounds very interesting but not likely for three key reasons.
Better revenue reported of $1.3 billion compared to $1.28 billion expected was positive news but the bottom line, profitability was weak. DoorDash is losing money and for the full-year 2021, it reported a net loss of $468 million compared to a net loss of $461 million in 2020. On a quarterly basis, it struggles to make a profit reporting a net loss of $155 million in Q4 2021 higher than the net loss of $101 million in Q3 2021.
Investors should also not be that happy with a stock dilution as total shares outstanding grew by 8.4% in the past year.
There is a slowdown in the growth of total orders in the past three consecutive years showing a loss of momentum in the business. Year-over-year growth for the quarter ending on June 30, Sep. 30 and Dec. 31 of 2021 were 69%, 47%, and 35% respectively.
DoorDash has another problem to face, which is high gasoline prices. DoorDash drivers are not considered employees but are freelancers. The high gasoline prices turn a ride into a less profitable business that may discourage drivers to pursue more daily deliveries. Should DoorDash find a way to compensate its drivers with some sort of bonus for high gasoline prices, it will be reflected as higher operating expenses. In both cases, this factor is negative for DoorDash.
A one-month rally for DASH stock does not change the 1-year trend that is a downtrend. It is better to build short positions as the downtrend has more chances to resume soon.
On the date of publication, Stavros Georgiadis, CFA 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.