Although it’s not a member of the “Magnificent Seven,” Uber Technologies (NYSE:UBER) has been a favorite among financial traders in 2023. On the other hand, investing in Uber at its current price could lead to suboptimal returns in 2024. I am neutral on UBER stock because the company’s future growth seems to have already been priced into the shares.
Headquartered in California, Uber Technologies provides ride-hailing and delivery services. The COVID-19 lockdowns were a major problem for Uber, but the company earned revenue through grocery-delivery services during the lockdowns.
As 2023 comes to a close, Uber is demonstrating strength in the post-COVID-19 era. However, while Uber is set to join a well-known stock-market index, UBER stock investors may have gotten ahead of themselves. Consequently, I’m advising caution, even though I like Uber’s growth prospects.
Uber’s Imperfect Recovery
There’s no denying that Uber Technologies is doing better today than in 2020 or even 2022. As evidence of this, Uber reported third-quarter 2023 earnings of $0.10 per share, easily beating the consensus estimate of $0.07 per share. Plus, this result shows a dramatic improvement over the loss of $0.61 per share reported in the year-earlier quarter.
Overall, it was a strong quarter for Uber. The company’s Q3-2023 gross bookings totaled $35.3 billion, up 21% year-over-year and above Wall Street’s call for $34.6 billion. Most likely, William Blair analyst Ralph Schackart had these stats in mind when he assigned UBER stock an Outperform rating.
Furthermore, Schackart envisions another good year for Uber, but only under certain conditions. “Assuming the macroeconomy does not deteriorate significantly, we believe the 2024 setup continues to remain favorable for Uber given the product enhancements made and the company’s ability to maintain costs and expand margins,” the William Blair analyst predicted.
Don’t assume that Uber had a perfect quarter, though. The company’s revenue grew by 11% year-over-year to $9.3 billion, which isn’t bad at all. However, this result fell short of the consensus estimate of $9.5 billion.
Still, this didn’t stop KeyBanc from lifting its price target on UBER stock from $61 to $70 and reiterating its Overweight rating on Uber shares. Per TheFly, KeyBanc sees market conditions as “rationalizing” and concluded that “this should lead to improved EBITDA and free cash flow generation” for Uber.
Uber’s Eye-Popping Valuation
KeyBanc’s point is duly noted, and Uber Technologies’ quarterly performance was generally encouraging, even if it wasn’t perfect in every way. Yet, if valuation matters in 2023 and 2024, then prudent investors don’t need to jump into UBER stock right now.
Don’t get the wrong idea. I still like Uber’s growth prospects for the long term. The company’s recently announced partnerships for expense management in the U.S. and delivery via electric scooters in Taiwan could stand Uber in good stead in the coming years.
Furthermore, there’s a news item that recently put Uber in the spotlight in the financial media. Specifically, Uber will join the prestigious S&P 500 Index (SPX) in a few days.
Uber CEO Dara Khosrowshahi celebrated the occasion on X (formerly known as Twitter), posting, “Super proud of the @Uber team for S&P 500 inclusion. Great way to head into the weekend and get back to building on Monday!” Khosrowshahi’s enthusiasm is understandable since inclusion in the S&P 500 will bring positive attention to Uber.
Moreover, inclusion in the S&P 500 may boost the UBER stock price or at least prevent it from falling. That’s because many funds and accounts, from IRAs and 401(k)s to personal and professional investment portfolios, include the S&P 500. Hence, when they buy and hold the S&P 500, they’ll also have a small share position in Uber.
This is all fully known and understood by the market, so be assured that investors have already priced Uber’s inclusion in the S&P 500 into the shares. This helps to explain why UBER stock soared this year, and why Uber’s trailing GAAP P/E ratio is an eye-popping 125x (as opposed to the sector median P/E ratio of 23x).
Is UBER Stock a Buy, According to Analysts?
On TipRanks, UBER comes in as a Strong Buy based on 34 unanimous Buy ratings assigned by analysts in the past three months. The average Uber Technologies stock price target is $64.24, implying 3.3% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell UBER stock, the most profitable analyst covering the stock (on a one-year timeframe) is Eric Sheridan of Goldman Sachs (NYSE:GS), with an average return of 48.89% per rating and an 87% success rate. Click on the image below to learn more.
Conclusion: Should You Consider UBER Stock?
Uber Technologies is, overall, bouncing back nicely from the COVID-19 lockdowns. Also, it’s exciting to learn that Uber is joining the ranks of the prestigious S&P 500 Index.
Be careful, though, as the market undoubtedly knows all of this and has already baked its enthusiasm into UBER stock. Due to valuation concerns, I’m not considering UBER right now, even though I’m positive about the company’s long-term prospects. Stock traders might consider waiting until the share price falls 10% or even 20% before taking another look at Uber.
