DoorDash (NYSE:HYPHEN) staged the biggest weekly rally since November 2021. Amid euphoric buying, investors forgot about shortcomings in the online food ordering and delivery platform. DASH stock is up 23% in the past week. After breaking above the 50-day simple moving average, the company must demonstrate that it can monetize its growing user base.
DoorDash posted losses in the last quarter. In the current quarter, he sees order values beat consensus. Does that make DoorDash a buy right now?
Expected DASH stock market rally
the Nasdaq the index peaked in mid-November 2021. It did not break out after the second trading day of 2022, with an accelerated sell-off panic in the market due to fears of excessive valuations. The bearish trend accelerated for DoorDash after posting a loss of $2.67 per share in the fourth quarter. With a market cap of $33.5 billion, speculators couldn’t justify the stock price. The company’s underlying sustainability is questionable.
DoorDash saw orders up 35% in the fourth quarter to $369 million. Gross market order value increased (GOV) by 36% to $11.16 billion. Additionally, its percentage of monthly average users ordering from non-restaurant merchants increased by 14% in December 2021. This modest growth suggests that the company’s addressable market is expanding. Investors should expect revenue growth to continue this year.
DoorDash eased investor fears by pegging a gross market order range of $11.4 billion to $11.8 billion, above consensus analyst estimates. He will boost commands by relying on his strength. He will also be looking for more revenue opportunities for Dashers. Unfortunately, DoorDash’s shareholder letter did not specify how it will achieve these goals.
Bigger losses ahead
In its outlook for 2022, the company expected Marketplace GOV to be between $48 billion and $50 billion. However, 2022 Adjusted EBITDA will be between $0 and $500 million. Investors should not ignore these vague prospects. DoorDash will show surprisingly high spending this year. This includes stock-based compensation, acquisitions and high research and development costs.
In the fourth quarter, DoorDash lost $155 million. Stock-based compensation and some payroll taxes cost the company $133 million. After adjustments, EBITDA was $47 million. The EBITDA margin was 4%.
New initiatives to stimulate growth
Last month, DoorDash announced an express grocery delivery service with Albertsons companies (NYSE:AIT). The new service will provide consumers with faster and more convenient delivery of fresh groceries in less than 30 minutes. The company relies on the fast service that will differentiate its offer from the competition.
Investors need to assess consumers’ willingness to pay a premium for convenience and prompt service in the face of soaring inflation. The Bureau of Labor Statistics released that the consumer price index rose 7.9% in February 2022. Since the measure depends on a basket of goods, actual inflation for most consumers is probably higher. For example, house and heating costs represent a greater proportion of the monthly budget. To offset rising costs, consumers will need to cut unnecessary spending. DoorDash faces higher risks of people relying less on DoorDash’s services in 2022.
To cut costs, consolidate with the competition, and expand its global market, DoorDash reportedly held talks to buy out Deliveroo (OTCMKTS:DROOF) last summer. The rumor is a detrimental development for both companies. This suggests that the two companies would be running unprofitable businesses on their own. However, turning to mergers and acquisitions does not automatically take two unprofitable companies and make them profitable.
DoorDash and Deliveroo pay too little and have high operating expenses. In the very long term, the industry could turn to automated delivery solutions. For example, drones and autonomous vehicles could replace personnel.
Analysts have largely ignored DoorDash for the past month. DA Davidson’s Tom White is the latest firm to issue a $135 price target on DASH stock over a month ago, according to Tipranks. More importantly, the stock performs poorly in terms of quality and value. According to Stock Rover, a quantitative rating service, the DASH stock has a 39/100 in value and 53/100 in quality.
The stock value score is better than last year. The stock has fallen nearly 60% from its 52-week high. Speculators should not use the 52-week high as a benchmark. Chances are the Nasdaq won’t return to those euphoric levels.
In 2021, markets expected “transitional” inflation and lower interest rate hikes. For 2022, expect Federal Reserve increase its hikes to 50 basis points after each meeting. The Russian war against Ukraine has accelerated inflation. Yet structural bottlenecks for raw materials will increase costs. Wheat and energy prices will continue to rise. Input costs for the food industry will increase due to higher wheat prices. DoorDashers face higher transportation costs as gas prices rise.
Your takeaway meals on Dash Stock
DoorDash faces tremendous selling pressure in 2022. The time to buy DASH stock has come and gone in the last month. Shares potentially bottomed out at $80. Risks will rise again for markets to retest this bottom. If pessimism rises, the bears could then send the stock below the 52-week lows.
As of the date of publication, Chris Lau had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.