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Uber Stock Appreciates 13% YTD: What Should Investors Do Now?
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Uber Technologies (UBER - Free Report) , which provides ride-hailing, food delivery and freight (leasing vehicles to third parties) services through its Mobility, Delivery and Freight segments, respectively, continues to exhibit strong fundamentals that suggest potential for long-term growth, driven by its constant efforts to expand its network.
The company has seen its shares rise 13% year to date, outpacing the industry’s 6.1% growth. UBER shares have performed way better than rival Lyft's (LYFT - Free Report) shares. However, Uber, which joined the coveted S&P 500 index in December 2023, has lagged the same year to date.
YTD Price Performance
Image Source: Zacks Investment Research
Factors Supporting Uber’s Growth
Even though Uber’s primary business is ride-sharing, it has diversified into food delivery and freight over time. Diversification is imperative for big companies to reduce risks, and UBER has excelled in this area. It has engaged in numerous strategic acquisitions, geographic and product diversifications and innovations. Uber’s endeavors to expand into international markets are commendable and provide it with the benefits of geographical diversification. Prudent investments enable it to extend services and solidify its comprehensive offerings. Its focus on disciplined spending and cost-cutting measures also bodes well as far as bottom-line growth is concerned. The company’s long-term (3-5 years) earnings growth rate is an impressive 53.2%, higher than its industry’s 21.6%.
Earlier in the year, Uber inked a deal with Maplebear (CART - Free Report) , a grocery technology company principally in North America that works with grocers and retailers to transform how people shop, to deliver products through the Instacart app. The deal highlights its efforts to strengthen the delivery business. Last month, Uber and Cruise announced a multiyear strategic partnership to bring Cruise autonomous vehicles to the Uber platform. The companies intend to launch the partnership next year. The deal is in line with Uber’s efforts to expand its presence in the autonomous vehicle market.
Uber’s ride-sharing as well as delivery platforms are growing in popularity. This is generating strong demand, which, along with new growth initiatives and continued cost discipline, are driving the company’s results. In the last reported quarter, total gross bookings increased 19% year over year to $40 billion, with trips soaring 21% to 2.8 billion. Gross bookings are likely to remain strong in the third quarter of 2024 as well. Driven by the strength in its cash flows, the company started repurchasing shares for the first time.
Favorable Readings
Earnings per share estimates for Uber have been revised upward over the past 60 days, reflecting optimism.
Image Source: Zacks Investment Research
Uber seems to be undervalued at current levels compared to the industry. Its forward 12-month price-to-sales, a commonly used multiple for valuing such stocks, reading is near its median over the last five years.
Image Source: Zacks Investment Research
Some Headwinds
Despite the above-mentioned tailwinds, there are certain factors that one needs to be mindful of before making an investment decision on UBER.
The performance of the Freight unit due to the slowdown in freight demand is concerning. Freight revenues declined in each of the first two quarters of 2024 due to lower revenue per load as a result of the freight market downturn. Additionally, Uber has been grappling with labor unrest for some time.
Despite the company’s efforts to improve operational efficiency and strategic growth initiatives, we are concerned about its high debt levels. Long-term debt increased 66.6% to $9.5 billion at second-quarter 2024-end from 2019 levels. Notably, UBER went public in 2019.
Long-Term Debt to Capitalization
Image Source: Zacks Investment Research
End Note
Despite being attractively valued and having a lot in its favor, we believe that investors should not rush to buy Uber stock now due to the headwinds that it faces. Instead, they should monitor the developments pertaining to the stock closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains. For those who already own the stock, it will be prudent to stay invested for solid long-term prospects. The stock’s Zacks Rank #3 (Hold) supports our thesis.
Image: Bigstock
Uber Stock Appreciates 13% YTD: What Should Investors Do Now?
Uber Technologies (UBER - Free Report) , which provides ride-hailing, food delivery and freight (leasing vehicles to third parties) services through its Mobility, Delivery and Freight segments, respectively, continues to exhibit strong fundamentals that suggest potential for long-term growth, driven by its constant efforts to expand its network.
The company has seen its shares rise 13% year to date, outpacing the industry’s 6.1% growth. UBER shares have performed way better than rival Lyft's (LYFT - Free Report) shares. However, Uber, which joined the coveted S&P 500 index in December 2023, has lagged the same year to date.
YTD Price Performance
Factors Supporting Uber’s Growth
Even though Uber’s primary business is ride-sharing, it has diversified into food delivery and freight over time. Diversification is imperative for big companies to reduce risks, and UBER has excelled in this area. It has engaged in numerous strategic acquisitions, geographic and product diversifications and innovations. Uber’s endeavors to expand into international markets are commendable and provide it with the benefits of geographical diversification. Prudent investments enable it to extend services and solidify its comprehensive offerings. Its focus on disciplined spending and cost-cutting measures also bodes well as far as bottom-line growth is concerned. The company’s long-term (3-5 years) earnings growth rate is an impressive 53.2%, higher than its industry’s 21.6%.
Earlier in the year, Uber inked a deal with Maplebear (CART - Free Report) , a grocery technology company principally in North America that works with grocers and retailers to transform how people shop, to deliver products through the Instacart app. The deal highlights its efforts to strengthen the delivery business. Last month, Uber and Cruise announced a multiyear strategic partnership to bring Cruise autonomous vehicles to the Uber platform. The companies intend to launch the partnership next year. The deal is in line with Uber’s efforts to expand its presence in the autonomous vehicle market.
Uber’s ride-sharing as well as delivery platforms are growing in popularity. This is generating strong demand, which, along with new growth initiatives and continued cost discipline, are driving the company’s results. In the last reported quarter, total gross bookings increased 19% year over year to $40 billion, with trips soaring 21% to 2.8 billion. Gross bookings are likely to remain strong in the third quarter of 2024 as well. Driven by the strength in its cash flows, the company started repurchasing shares for the first time.
Favorable Readings
Earnings per share estimates for Uber have been revised upward over the past 60 days, reflecting optimism.
Uber seems to be undervalued at current levels compared to the industry. Its forward 12-month price-to-sales, a commonly used multiple for valuing such stocks, reading is near its median over the last five years.
Some Headwinds
Despite the above-mentioned tailwinds, there are certain factors that one needs to be mindful of before making an investment decision on UBER.
The performance of the Freight unit due to the slowdown in freight demand is concerning. Freight revenues declined in each of the first two quarters of 2024 due to lower revenue per load as a result of the freight market downturn. Additionally, Uber has been grappling with labor unrest for some time.
Despite the company’s efforts to improve operational efficiency and strategic growth initiatives, we are concerned about its high debt levels. Long-term debt increased 66.6% to $9.5 billion at second-quarter 2024-end from 2019 levels. Notably, UBER went public in 2019.
Long-Term Debt to Capitalization
End Note
Despite being attractively valued and having a lot in its favor, we believe that investors should not rush to buy Uber stock now due to the headwinds that it faces. Instead, they should monitor the developments pertaining to the stock closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains. For those who already own the stock, it will be prudent to stay invested for solid long-term prospects. The stock’s Zacks Rank #3 (Hold) supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.