Uber, which has hit a recent 52-week high, gives that exciting feeling of deja vu, where investors step into a stock when its thrill is at its peak. Well, this is certainly one stock that deserves the hype, as its rapid cash flows, robust buybacks, and increasing grip in rideshares and deliveries gives the impression that this company is doing really well.
Yet, stocks don’t go up straight, and Uber seems like a textbook example of premium growth paying for progression at a high valuation. This is kind of like going for a luxurious ride, where one can enjoy the experience, but of course, it’s going to cost you.
The rally reflects investor faith in Uber’s long-term vision, which is expansion beyond ride-sharing, stable growth in gross bookings, and the positioning in autonomous vehicles.
Financially, the $20 billion buyback plan is a powerful expression of faith by the management, and membership in the S&P 100 further adds to its credibility. However, worries about high debt and a strained price-to-earnings multiple cannot be dismissed.
From one perspective, Uber’s size and execution provide it with resilience against competitors such as Lyft, also it becomes easy to envision autonomous cars as a multi-billion-dollar revenue source in the future.
From the other perspective, overpaying for growth shares has tended to burn investors in the past when earnings revisions are trending lower, and Uber’s most recent revisions are quite little to instill confidence.
Uber’s tale is no longer one of endurance, rather it’s one of scaling and defining the future of mobility. Its fundamentals justify long-term growth, but the price today demands patience as an asset. Investing requires patience and not trying to jump on the ride at the earliest opportunity all the time.
Uber’s dominance, international growth, and diversification makes it a long-term champion to hold on to, even at premium prices. Existing shareholders can relax and take the ride, but new ones may prefer to wait for a market to dip before entering.
