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Uber: No Sign of Upside Yet

Stock MarketsSep 19, 2021 10:31AM ET
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© Reuters. Uber: No Sign of Upside Yet

Uber Technologies (NYSE:UBER) develops platforms that allow for independent ride-sharing and food deliveries. I am bearish on the stock. (See Uber stock charts on TipRanks)

C-Suite Issues

Uber's series of management issues persist. Sukumar Rathnam, the company's head of engineering, is the latest in a line of management departures since the start of the pandemic. Rathnam was in the job for a little over a year before rising tensions between management forced his exit.

Since listing as a public company, Uber has struggled to find the correct blend in its C-suite, and that has upset investors and caused a deflated stock price.

Struggling for Profitability

Uber managed to beat analysts' expectations in its Q2 earnings report, with a revenue beat of $167.18 million and an EPS beat of $1.07. The company, however, remains unprofitable, and concerns are building up.

Uber is still trading at a -27.39% EV/EBITDA margin, while the sector's trading at a margin of 13.41%. Sure, we can argue that it's an improvement on its 5-year average of -52.60%, but there's no sign of operational efficiency, with the total operating expense (69.37%) still exceeding that of 2018 (66.78%).

Valuation

One can always downplay the trajectory of a company's profitability margins during a growth phase. Still, Uber's growth metrics indicate that it isn't growing fast enough to justify its stock price.

Unlike Price/Earnings, the Price/Sales metric can be used at any stage of a business's lifecycle. You would usually like your PS ratio to fall between 1.00 and 2.00 to justify the current stock price; Uber has a ratio of 5.65, which isn't only significantly higher than the benchmark, but also 255.29% higher than the sector average.

If we are to base the stock price on the future cash flow, it means that it's significantly overvalued. A good price/cash flow ratio is usually below 15.00, but Uber's forward ratio of 394.15 exceeds that by a mile. Plus, at a negative free cash flow yield (-3.63%), any claim of future growth would be stale.

Wall Street's Take

The average Uber price target is $68.52, with an upside of 72.38%.

Wall Street thinks the stock is a Strong Buy, with 23 Buy ratings and 2 Hold ratings. Then again, it's rated the stock highly since its IPO, but we're yet to witness any noticeable gains. If you're going on basic intuition, you will rate the stock as a buy, but the data suggests otherwise. There are also events holding the stock back: C-suite and driver contract issues continue to play a significant role, and Uber has a track record of controversy. I'm not willing to bet against it cooling down.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Uber: No Sign of Upside Yet
 

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