Tuesday, October 19, 2021

Can DoorDash Stock Outpace its Rivals?

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(C) Reuters. Can DoorDash Stock Outpace its Rivals?

DoorDash (DASH) stock held its own relatively well on Monday’s brutal session of trade that dragged many unprofitable, high-multiple tech stocks much lower.

The stock fell just 1.2% on the day, and is in great shape to keep its momentum going, even in the face of a broader market correction that so many investors and strategists are expecting over the coming weeks.

Given recent momentum and a handful of catalysts, DoorDash stock could continue dashing to new highs, even if expensive growth stocks are due to fall into the crosshairs of this sell-off.

Still, the current price tag leaves a lot to be desired. The stock now finds itself trading at 17.6 times sales, which is a pretty penny for a firm that’s operating in the fiercely competitive food delivery scene.

While I’m a huge fan of the momentum, and potential for gains in the event of worsening pandemic restrictions, I am inclined to stay neutral on the name. (See DASH stock charts on TipRanks)

DoorDash’s Top Spot Could Be Challenged

As the top food delivery play in America, DoorDash has the ability to scale up as it explores options for pickups, most notably convenience store pickups and, most recently, liquor delivery.

The company arguably has room to run versus the likes of its rival ridesharing and food delivery firm Uber (NYSE:UBER). With a 57% share of the U.S. market share for restaurant deliveries, DoorDash stands to benefit from significant networking effects. If leveraged effectively, DoorDash could easily add to its lead and leave its competitors for the dust.

That said, the competitive threat posed by Uber Eats should not be ignored. Uber Eats has been aggressively investing in marketing of late. Given the below-average switching costs, Uber Eats could easily bring forth immense pressure to the defending market leader.

Arguably, DoorDash can be viewed as the firm in food delivery with the most to lose, especially as Uber looks to bundle its services to provide its users with a more significant value proposition.

Undoubtedly, frequent ride hailers who also use food delivery services would be enticed to move some, or all, of their business over to Uber Eats.

For now, though, exclusive restaurants, grocers, or other retailers may be crucial to retention for DoorDash. With a competent management team, I do not doubt its ability to fend off the likes of an Uber.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, DASH stock comes in as a Moderate Buy. Out of 14 analyst ratings, there are 10 Buy recommendations, and four Hold recommendations.

The average DASH price target is $209.27. Analyst price targets range from a low of $180 per share, to a high of $255 per share.

Bottom Line

On the whole, analysts aren’t too enthused with DoorDash stock after its latest run. The average analyst price target calls for a negative return over the next 12 months. Despite this, there are no Sell ratings on the name.

If the worst of pandemic restrictions is behind us, DASH stock could be vulnerable to a pullback, given its pricey valuation.

On the flip side, variant-driven outbreaks following Delta could act as the tide that lifts all boats in the food delivery scene. DASH stock is arguably one of the better lockdown hedges in that space.

Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.

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Can DoorDash Stock Outpace its Rivals?

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