Analysts say one of the stocks is set to soar 50%.
Amid inflation, rising rates, and a fractured financial sector, it might seem safer to park your cash in a safe haven until the market stabilizes. However, opportunistic investors see this as an ideal time for actively seeking out undervalued stocks that could rally as the macro environment improves. One beaten-down area of the market that is poised for rapid recovery as global economies rebuild strength is ride-sharing.
The global ride-sharing market is expected to grow from $84.30 billion in 2022 to a whopping $242.73 billion in 2028. That figure represents a Compound Annual Growth Rate (CAGR) of 16.3% over the next six years, mainly split between two competitors. In the world of ride-sharing companies, Uber and Lyft form a de facto duopoly. It’s estimated that the two names together command more than 95% of the rapidly expanding market.
Over the last couple of years, both companies have made a number of strategic investments that are beginning to materialize. However, one of these two names stands out as a clear winner based on profit growth and current valuation. Institutional investors have recently taken notice, and many of the Wall Street pros have expressed bullish sentiment on one of these two stocks. In fact, analysts see one of the two ride-hailing competitors’ share price stacking on more than 50% over the next 12 months.
Uber Technologies (UBER)
Uber’s gross bookings rose 28% in 2022, down from its 56% post-pandemic growth in 2021, and it expects just 17%-21% year-over-year bookings growth in the first quarter of 2023. However, its adjusted EBITDA improved from a loss of $774 million in 2021 to a profit of $1.7 billion in 2022. It also expects to post a positive adjusted EBITDA of $660 million to $700 million in the first quarter. The impressive profit growth can be attributed to its cost-cutting measures and rising take rates across its mobility and delivery businesses.
Analysts expect Uber’s revenue to increase 16% to $36.9 billion for the full year as its adjusted EBITDA rises 86% to $3.2 billion. Based on those estimates, its stock trades at just two times this year’s sales and 21 times its adjusted EBITDA. It’s also still trading nearly 25% below its IPO price. 41 0f the 46 analysts offering recommendations say to Buy Uber stock. A median price target of $47 represents an increase of 50% from the current price.
Lyft (LYFT)
After cratering last year, Lyft’s share price plunged again recently following the release of its latest disappointing financial results and lowered guidance. Shares have continued to slide since the release, and the stock today changes hands at single-digit prices. Yet while at first glance, LYFT may seem like a bargain, it could easily end up being a cheap stock that keeps getting cheaper. Although the company has worked to lower costs, it is difficult to see how it can be competitive on price and also ramp up its margins towards levels indicated in its guidance objectives without further and substantial cost cuts.
Analysts have slashed their 2023 earnings forecasts as concerns rise that the company’s efforts to regain ground lost to Uber will result in lower profits, with little to show for it. The consensus among 43 polled analysts is to hold Lyft stock. An average price target of $12.25 represents an increase of 23%.
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