As anticipated debuts go, the ride-hailing company Lyft (NASDAQ:LYFT) rolled onto Wall Street with some mighty flat tires. For starters, Lyft stock’s March 2019 IPO wasn’t fit for investors to hail; it came off a net loss of $911 million, 32% wider than 2017.
After its debut at $72 per share, Lyft found itself dropping to $55 territory two months later — a loss of 24% — even as the company faced a class action lawsuit from investors who claimed it misled investors in its filing to go public.
Combined with the rotten debut of Uber (NYSE:UBER), this made for an abject lesson all investors should henceforth heed: Never confuse the sexiness of a tech stock, and/or its sector, for the solid financials that reflect its true value.
Rolling In Reverse With Profits
For example, let’s look at Lyft’s price-earnings ratio today. It doesn’t have one, since the ride-booking outlet isn’t making a profit. And that share price? You might as well call roadside assistance, because Lyft stock is now mired in the $27 range.
Now ask yourself: Would you buy stock in an unprofitable company with a share price almost two thirds lower than when it launched little more than a year ago? And down 37% for 2020?
I didn’t think so. And neither would I. Still, some investors can’t and won’t read the signs.
Last year, the media did market watchers no favors; major publications fell for the hype, too. As Lyft prepared to go public, Inc. magazine ran a piece — either misguided or fawning in retrospect — that celebrated the company’s race to go public. It quoted an interview with Lyft co-founder Logan Green: “We’re really happy with the focus that we’ve had. We’re going at the right pace. We’re going deep in transportation, deep in the markets we’re in, that allows us to gain the share that we’ve gained.”
Hmmm. Apparently, by “share” Green didn’t mean “share price.”
Why Investors Still Can’t Look Away
But will some people learn? The promise of landing a high-tech find on the order of Netflix (NASDAQ:NFLX), still compels market mavens to highlight Lyft. They see a ready-made opportunity to scoop up a bargain and squirrel away a sure thing for the future. Some point to the recent reports that Lyft has cleaned up its financial act, and a mini-rally at the outset of 2020. That saw the stock rise 25%, though the peak still came nowhere near the IPO price.
Yet companies in this position just love to tout their comeback strategies, and this one is no exception. Think about it: Just last week, Lyft “reported Q2 revenue of $339.3 million versus $867.3 million in the second quarter of 2019, a decrease of 61 percent year over year.” That’s stunning, even if you factor in the impact of the novel coronavirus. Still, the company characterized the results as “strong cost management and execution in challenging environment.”
Then came Green with some more suspect cheerleading: “Our performance reinforces our belief that Lyft is taking on the critical work necessary to emerge from the crisis as a stronger company.”
Stronger? Compared to what?
The Bottom Line on Lyft Stock
Let me repeat: Lyft. Is. Not. Profitable. Nor was it before Covid-19 knocked ride-hailing stocks back into the Stone Age. Need more convincing? It’s somehow headed south as many other high-tech concerns have transcended and defied the currently sour economy. Big winners on this list include Advanced Micro Devices (NASDAQ:AMD), Apple (NASDAQ:AAPL) and yes, Netflix.
In fact, if Lyft has any track record, it’s this: fooling the media with smoke and mirrors; an IPO for the loser’s record books; shareholder dissatisfaction over alleged improprieties that led to a lawsuit; abject financial failure; zero profits; and not a single comparable company other than Uber to point to in a sector still in its toilet-training phase.
So if Lyft stock were a ride-hailing driver … well, you know the drill. It’s stopping in the middle of a busy street without flashers, cutting off pedestrians and shedding someone’s driver-side mirror after making an illegal right turn and circling the block mindlessly at 5 miles an hour for five minutes, oblivious to the honking horns behind them. Not exactly safe.
Yes, it’s that bad. Stay away. And get to your investment destination with some other vehicle.
As of this writing, Lou Carlozo did not hold a position in any of the aforementioned securities.