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More Upside For Uber Stock?

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Uber Technologies (NYSE:UBER) is no longer seen as the underdog. After years of doubt regarding its ability to generate profit, the company has successfully silenced detractors and generously rewarded its shareholders. The stock has risen approximately 30% over the past year and an impressive 50% year-to-date—compared to the S&P500 index, which has increased by 17% over the last year and 10% year-to-date. The pressing question is: with Uber finally prevailing on Wall Street, is there still potential for growth?

Uber’s most recent quarter revealed $12.65 billion in revenue, marking an 18% increase year-over-year, while Gross Bookings grew 17% to reach $46.8 billion. Trips surged 18% to 3.3 billion, and net income amounted to $1.35 billion. However, the notable story is centered on cash flow. Uber generated $2.48 billion in free cash flow in Q2 alone, lifting the total for the trailing 12 months to over $8.5 billion. This financial strength enabled management to confidently announce a $20 billion share buyback, nearly 10% of the company’s market cap—a significant turnaround from the era when Uber was known for its cash burn. For those seeking growth with lower volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative, having outperformed the S&P 500 and recorded returns exceeding 91% since its inception. Additionally, see – Alcoa Stock To Less Than $16?

At current prices, Uber is trading at approximately 30x forward earnings and about 4x sales. This represents a premium over traditional transportation and logistics companies like FedEx (NYSE: FDX) at 13x or United Parcel Service (NYSE:UPS) at 16x, but is more reasonable than DoorDash stock (NASDAQ: DASH), which remains unprofitable and valued at 5.5x sales. Lyft (NASDAQ: LYFT), which is Uber’s closest competitor in the U.S., is priced lower at about 18x forward earnings but has not demonstrated the same scale or profitability. In essence, Uber is valued like a company that operates in two realms: more stable than a pure-play transport stock, yet not as richly valued as a high-growth tech platform. Investors are essentially wagering that Uber’s market position and cash flow can justify this mid-ground valuation.

Competition and Big Bets

Despite its strong performance, Uber continues to face numerous challenges. Lyft remains a considerable competitor in ride-hailing, and DoorDash is competing aggressively in delivery. Logistics giants FedEx and UPS pose significant challenges in e-commerce. Moreover, Uber is making bold investments in its vision for the future: autonomous vehicles (AV) and AI-driven logistics. The company has invested substantially in partnerships with Waymo, Baidu, and others, and has even acquired a $300 million stake in Lucid to support its AV ambitions. In the long run, this could enhance profit margins by reducing the reliance on drivers. However, in the short term, investors are wary—autonomous technology is costly and its timelines are unpredictable.

Historical Performance During Downturns

Uber’s stock has exhibited volatility during previous market downturns, at times performing worse than the S&P 500 index.

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Inflation Shock (2022)

  • UBER stock experienced a decline from peak to trough of 67.6%.
  • In comparison, the S&P 500 index fell by 25.4%.

COVID-19 Pandemic (2020)

  • UBER stock faced a decrease of 64.1%.
  • The S&P 500’s decline from peak to trough was 33.9%.

The significant drawdown of 67% in 2022 indicates that a considerable decline from present levels is not extraordinary. This history of volatility, combined with a high stock price, leads to investor caution. See – Buy or Sell UBER Stock – for further details.

What’s Next?

With the stock up nearly 50% this year, Uber no longer appears as a deep value turnaround—it is now priced for performance. Analysts anticipate that bookings will approach $49 billion next quarter, with EBITDA guidance exceeding $2.2 billion. If Uber continues to deliver growth at this scale while repurchasing shares, the rally could gain momentum. The risk? At 30x forward earnings, Uber has less room for error. Any slowdown in global demand, stricter labor regulations, or setbacks in its autonomous strategies could lead to declines. However, Uber has decisively shed its former reputation and presents itself as a cash-rich, scalable platform. Investors are no longer just along for the ride with Uber—they are actively steering the gains.

The substantial valuation of UBER stock might curtail its upside potential in the near to mid-term. As a different option, the Trefis Reinforced Value (RV) Portfolio, which has surpassed its all-cap stock benchmark (comprising the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices), providing strong returns for investors. The reasoning? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks offers a flexible approach to capitalize on favorable market conditions while minimizing losses during downturns, further explained in RV Portfolio performance metrics.