When it comes to ridesharing dominance, Lyft (NASDAQ:LYFT) isn’t the first name to come to mind. Rather, it’s sector juggernaut Uber Technologies (NYSE:UBER). While they’re similar enterprises, analysts clearly favor the latter with strong upside endorsements. In contrast, they’re rather pensive with LYFT stock.
It’s understandable. To be sure, Lyft simply doesn’t have the reach and breadth of its mainline rival. While Lyft is predominantly focused on the domestic ridesharing market, Uber has branched out internationally. As well, the sharing-economy specialist has moved into food deliveries and even transportation and logistics solutions.
Nevertheless, Lyft’s management team revealed an encouraging forward projection that deserves a rethink. It’s quite possible that the sharing economy could be big enough for two competitors. Based on this new information, I am leaning toward a bullish outlook for LYFT stock.
A Domestic Focus Might Not be Bad at All for LYFT Stock
One of the core reasons why I prefer Uber – and still do, if I’m being perfectly honest – over LYFT stock is the coverage. Presently, Lyft focuses on major cities in the U.S. and Canada. In contrast, Uber covers several global regions. That has a clear benefit amid the post-pandemic consumer’s prioritization of travel and overall experiential expenditures.
Recently, I stated, “Uber is a godsend for those who want to travel internationally. Without naming names, taxi driver scams represent one of the common pain points for tourists. However, with the Uber app, such concerns can be significantly mitigated. With the transaction occurring inside the app, it’s difficult for scammers to pull one over their victims’ heads. Uber ‘sees’ what its drivers are doing.”
I also pointed out that the Uber system incentivizes good behavior. “Those with poor reviews can lose access to part of or even all of the Uber platform. And that goes for the riders or users of other Uber services. Therefore, even with a massive language barrier, the invisible hand of capitalism helps direct transactions to positive outcomes.”
In that sense, Uber has much bigger expansion potential than LYFT stock. However, as TipRanks reporter Radhika Saraogi mentioned, shares of the smaller ridesharing firm moved up following disclosures of its long-term targets at its Investor Day conference. Specifically, Lyft anticipates gross bookings to rise by a compound annual growth rate (CAGR) of about 15% through 2027.
Why is that significant? Aside from the expected double-digit percentage growth rate, IBISWorld pointed out in its market research that the U.S. ridesharing sector has expanded at a CAGR of 5% over the past five years. In other words, management believes that it can comfortably exceed the actual growth rate of the domestic ridesharing industry.
That’s huge. It confirms strong confidence that the two companies can viably compete for this big pie.
It’s Time to Reassess the Lyft’s Projections
What’s also particularly intriguing about Lyft’s Investor Day disclosure is the business growth curve. Usually, the biggest growth rate metrics stem from a company’s early years. That’s when the law of small numbers applies. Basically, it doesn’t take much “energy” to move an enterprise from a small revenue tally to a bigger one on a percentage basis.
However, as the company in question matures, it’s no longer possible to see growth metrics of 30% or 40% annually. So, for Lyft to broadcast projections that it can conspicuously beat the growth rate of its core market is huge. In my opinion, LYFT stock deserves more than the modest pop it received.
Having said that, it’s also time to reassess the current financial projections for the ridesharing specialist. For Fiscal 2024, analysts are anticipating revenue of $5.51 billion, up 25.2% from last year’s print of $4.4 billion. That’s a robust projection, but it’s the next year that may require some adjustment. For Fiscal 2025, the consensus view for sales is $6.25 billion, up “only” 13.4% from projected 2024 revenue.
Given management’s confidence in its gross bookings guidance, analysts may look to raise this forecast.
A Possibly Ridiculous Bargain
Right now, LYFT stock trades at a trailing-year sales multiple of approximately 1.3x. That seems ridiculous in light of management’s aforementioned guidance on bookings. More importantly, the underlying application software sector runs an average multiple of 3.84x.
Should the company hit the expected Fiscal 2024 top-line target of $5.51 billion, it would mean that LYFT stock is currently trading at a projected sales multiple of about 1.1x. If you believe in management’s expectations for its business and its performance relative to the industry, then LYFT would appear to be a stunning bargain.
Is LYFT Stock a Buy, According to Analysts?
Turning to Wall Street, LYFT stock has a Hold consensus rating based on eight Buys, 19 Holds, and one Sell rating. The average LYFT stock price target is $19.48, implying 33.3% upside potential.
The Takeaway: LYFT Stock Deserves More Recognition amid Its Anticipated Growth
While Lyft’s mainline rival enjoys the biggest footprint in the ridesharing arena, that doesn’t mean that the company is hopelessly irrelevant in the core domestic market that it serves. Instead, the company’s management team stated that its gross bookings can expand at a greater rate than the underlying U.S. ridesharing sector. That means two enterprises can compete in the space, suggesting that LYFT stock is grossly undervalued.
