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Uber Stock: Intriguing Growth Play Could Turn Corner
Stock Analysis & Ideas

Uber Stock: Intriguing Growth Play Could Turn Corner

Shares of ride-hailing top dog Uber (UBER) have been under considerable pressure for around a year now, thanks in part to a 2021 filled with COVID-induced labor disturbances. 

With tech stocks leading the charge lower once again amid renewed rate hike fears, Uber stock looks well-poised to buck the trend by holding its own, as the high-multiple tech trade sinks lower.

Why does Uber stock deserve such a free pass as tech crumbles?

Uber stock has already shed around 42% of its value from peak to trough. In essence, the band-aid has already been ripped off. Even before investors turned their back on high-multiple growth in anticipation of higher rates, many investors questioned Uber’s ability to sustainably turn a profit, as the firm grappled with COVID-19 disruptions.

Undoubtedly, the third quarter that saw a wider than anticipated per-share earnings loss didn’t help build investor confidence in the name. However, it was encouraging to see that the firm posted positive adjusted EBITDA for the first time as a publicly traded company.

Despite the numerous unknowns clouding Uber’s longer-term future, most notably the disruptive impact once self-driving vehicles hit the roads, I do think it’s hard to ignore the things that are going right at Uber. 

The company could make a big push into the green this year, as COVID-19 headwinds abate further. Combined with a modest multiple on the stock, I remain bullish on the name.

Uber: What’s the Biggest Risk?

Looking ahead to the next year or two, the future looks quite bright. Sustained profits could be up ahead, and management has the tools it needs to proceed forward, all while macro conditions become less hostile as the Omicron wave winds down.

However, the longer-term outlook seems much cloudier than the near-to-medium-term. Indeed, autonomous vehicles could have a considerable disruptive impact on Uber’s dominance.

There’s no question that autonomous vehicles (AVs) could bring forth increased competition in the ride-hailing scene, effectively eroding Uber’s moat. That said, any sales losses due to increased crowdedness in the ride-hailing space are likely to also accompany upward pressure on margins since ride-hailing firms will have no drivers to pay with AVs.

The million-dollar question remains how Uber will evolve once AVs hit the roads.

Tesla’s Entry into Ride-Hailing

Elon Musk’s past comments about Tesla (TSLA) and its potential entrance into the ride-hailing space may be a cause for concern for the incumbent ride-hailing giants. Tesla is a disruptor at heart, and if it does enter the AV space, it could spark the race to the bottom as far as ride prices are concerned.

In such a scenario, a considerable amount of the savings from not having to pay drivers could be pocketed by customers. The net impact on Uber? It could be drastically negative should the ride-hailing industry really open up to such technological disruptors.

In the meantime, fully autonomous vehicles seem many years away, and Uber could have room to really rake in considerable sums of cash, as it looks to become an increasingly profitable growth company.

Indeed, Uber may steer into and out of profitability from quarter to quarter, but the ultimate trajectory is encouraging. Uber’s management team has a compelling roadmap to make a big push towards sustained profitability.

Wall Street’s Take

According to TipRanks’ analyst rating conensus, UBER stock comes in as a Strong Buy. Out of 18 analyst ratings, there are 18 Buy recommendations.

The average Uber price target is $69.50. Analyst price targets range from a low of $55 per share to a high of $82 per share.

Bottom Line on Uber Stock

The much-doubted Uber may evolve to become profitable enough to allow its stock to mostly steer clear of further damage in this latest growth-targeted sell-off.

Further, Uber stock is far from expensive, with shares trading at around 4.6 times sales. While management has its work cut out for it in the new year, I think the bar is set way too low here, especially as the worst of COVID pressures are likely to ease moving forward. 

Despite the negative price action and longer-term unknowns relating to AVs, I find Uber’s medium-term trajectory and valuation to be very tempting.

Further, Uber’s ability to adapt in the age of AVs may be severely discounted. The company has an incredibly strong management team alongside a ride-hailing algorithm that could be tough to compete against.

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