With traditional taxis slowly going the way of the dinosaurs, all eyes are on private hire companies like Lyft & Uber. Following its earnings reports, mentions of Lyft (NASDAQ:LYFT) were up 200%, leading investors all over the globe to wonder ‘Is Lyft a good investment’. With the ride-sharing company quickly taking market share away from first-mover Uber, it could be an excellent time to add Lyft to your portfolio while it’s trading at just $19, a huge 25% YTD discount.
Is Lyft a Good Investment - Positives
There are plenty of reasons why adding Lyft to your portfolio is a great idea for 2022, here are a few of the big ones.
Although Lyft’s revenue dropped by 35% over 2020 due to the pandemic, it quickly climbed by 36% during 2021 as travel restrictions were slowly lifted. During Q1 2022, Lyft’s growth continued, with revenue increasing by 44% year over year to $876 million and the number of active riders increasing by 32% to 17.2 million.
While Lyft has always had trouble with profitably, things seem to be improving as the company’s net loss decreased from $1.8 billion in 2020 to $1 billion in 2021, then to just $197 million during Q1 2022. This is a great sign for Lyft and shows the company is getting back on its feet following pandemic and inflation-related woes.
Analysts are hopeful when it comes to Lyft. They're predicting a 33% revenue increase for Lyft as well as a 155% EBITDA-adjusted improvement.
Despite lackluster earnings, Lyft has stated it wants to spend more on incentivizing drivers. While this might seem counterproductive on the surface, it’s clear that the amount of rides Lyft is facilitating is back on the up and up. Therefore, adding more drivers to its pool will allow the company to offer customers reduced wait times and better service, potentially benefiting Lyft in the near future.
For those wondering about how Lyft will survive if more restrictions are imposed, fear not, Lyft has around $2.2 billion in free cash on its books, meaning it’s got plenty of room to get its earnings improving. Additionally, Lyft is trading at a price-to-sales ratio of 2, below the market average, meaning it could be a great time for value investors to begin dollar-cost-averaging.
Is Lyft a Good Investment - Negatives
Critical thinking is a crucial part of the investment process, not only do you have to look for reasons to invest in a company but also reasons not to. Doing so allows you to take an objective look at any potential investment. Therefore, we’ve included a couple of reasons why it might be best to avoid adding Lyft to your portfolio.
The past year has not been kind to Lyft. Its share price dropped by almost 60% and Lyft is predicting further financial trouble in the near future. Following Lyft’s unfortunate Q1 earnings, it adjusted its guidance, predicting a 16%-58% EBITDA decline. However, this could be a move by Lyft to keep analyst predictions low, giving the company the potential to beat estimates during Q2 2022, which could substantially bolster its stock price.
As we briefly touched on, Lyft has struggled to become profitable. It posted a $200 million operating loss and burned a further $167 million in free cash flow. While there are a multitude of reasons why Lyft might be struggling (inflation, supply chain issues, travel restrictions), it’s certainly not a good look for the company.
Hype Asset of the Day - Conclusion
All in all, Lyft has had a rough time during the pandemic, worsened further by inflation and war. However, despite a sub-par earnings report and pessimistic earnings guidance, Lyft is quickly building itself back up and becoming profitable. While there’s still a lot of uncertainty ahead for the private hire company, for risk-tolerant investors, it could be the perfect time to add Lyft to your holdings. If you'd like to learn about more trending stocks before anyone else, check out our premium plans. Alternatively, if you’d like to learn more about the services offered by HypeIndex, head over to our FAQ page.
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