Food delivery and ridesharing platform Uber Technologies, Inc. (UBER) has been making headlines with its recent developments and performance in the market. However, the company faces inflation-related challenges and a potential economic slowdown in major global economies.
Therefore, I think it might be ideal to exercise caution and wait for a better entry point in the stock.
Since March 2022, the Fed has raised its benchmark borrowing rate ten times to a targeted range of 5%-5.25%. During this period, the labor market has shown resilience, with nonfarm payrolls climbing by nearly 1.60 million in 2023.
While inflation has declined from last year's peak level, it is higher than the Fed’s target of 2%, which might prompt the Fed to rate hikes further. Moreover, as per the World Bank, higher rates and overhangs from this year’s banking crisis are expected to drastically slow economic growth for the biggest global economies.
The institution said advanced economies, the U.S., Japan, and Euro area countries, are expected to grow by only 0.7% in 2023, down from 2.6% in 2022.
The stock has gained 65.8% year-to-date and 7.3% over the past month to close its last trading session at $40.99. The stock has a 24-month beta of 1.20.
Here are the factors that could affect UBER’s performance in the near term:
Latest Developments
On May 31, UBER and Party City, the leader of the global celebration, announced a partnership to bring party supplies and much more to customers nationwide. Party City is the first celebrations retailer to be available on Uber Eats.
The partnership aims to help people celebrate and create lasting memories with their loved ones during the summer season.
Moreover, on May 30, UBER and Serve Robotics Inc., a prominent autonomous sidewalk delivery company, announced an expansive partnership, which permits Serve to introduce its robots on Uber Eats in numerous U.S. markets, with plans to deploy up to two thousand Serve Robots.
By leveraging delivery robots, the collaboration aims to address issues such as traffic congestion and air pollution, enhance the efficiency of last-mile delivery, and introduce customers and merchants to a novel and innovative delivery experience.
Weakening Cash Position
During the fiscal third quarter that ended March 31, 2023, UBER’s revenue rose 28.7% year-over-year to $8.82 billion. However, its loss from operation amounted to $262 million. Cash and cash equivalents and restricted cash balance stood at $6.79 billion at the end of the quarter, down 10.8% year-over-year.
In addition, net loss attributable to UBER stood at $157 million or $0.08 per share.
Stretched Valuation
In terms of its forward EV/EBIT, UBER is trading at 221.29x, which is significantly higher than the industry average of 15.11x. The stock’s forward P/S multiple of 2.17 is 61.5% higher than the industry average of 1.34.
In terms of forward Price/Book, it is trading at 8.40x, 231.8% higher than the industry average of 2.53x. Its forward non-GAAP P/E multiple of 38.10 is 123.3% higher than the industry average of 17.06.
Healthy Profitability
UBER’s trailing-12-month gross profit margin of 30.95% is higher than the industry average of 29.83%. Its trailing-12-month asset turnover ratio of 1.04x is 29.5% higher than the 0.80x industry average. Its trailing-12-month cash from operations of $1.23 billion is 474.6% higher than the industry average of $214.60 million.
POWR Ratings Reflect Uncertainty
The stock has an overall C rating, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. UBER has a B grade for Quality, consistent with its healthy profit margins and a D grade for Value, which is justified by its stretched valuation multiples.
In the 81-stock Technology – Services industry, it is ranked #32.
Click here to see the additional POWR Ratings for UBER (Growth, Momentum, Sentiment, and Stability).
Bottom Line
While UBER's stock has performed well, boasting impressive year-to-date gains, it is essential to consider factors such as its weakened cash position, high beta, and stretched valuation. So, I think it might be prudent to wait for a better entry point in this stock.
Stocks to Consider Instead of Uber Technologies, Inc. (UBER)
Unfortunately, the odds of UBER outperforming in the weeks and months ahead are significantly compromised. However, many good stocks in the Technology-Services industry have impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:
NetScout Systems, Inc. (NTCT)
Box, Inc. (BOX)
Teradata Corporation (TDC)
What To Do Next?
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UBER shares were trading at $41.22 per share on Monday morning, up $0.23 (+0.56%). Year-to-date, UBER has gained 66.68%, versus a 12.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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