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Lyft Stock Should Finally Beat the Market This Week

By Rick Munarriz – Apr 21, 2019 at 9:00AM

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The country's second-largest ridesharing service declines for the third week in a row, but hope springs eternal for the thinning camp of bulls as the offering underwriters should chime in with upbeat takes.

Lyft (LYFT 5.34%) shares are still stuck in reverse, but at least the speedometer is slowing down. The country's second most popular ridesharing service slipped 2.6% during the holiday-abridged trading week. The broken IPO fell short of the S&P 500's negligible 0.1% slide, but it sure beats the 4.9% drop it experienced in its first full week of trading and the brutal 19.5% plunge that followed in its second full week on the market. 

There's no denying that the Lyft IPO has been a colossal disappointment. The stock has shed 34% of its value since peaking moments after its first trade as a public company late last month, and the shares are now 19% below their IPO price of $72. 

Three riders and a driver in an invisible Lyft vehicle.

Image source: Lyft.

Speaking of braking problems

Lyft's rough third full week of trading began on a sour note. It announced last weekend that it would be pulling 3,000 of its electric rental bikes from three U.S. cities. Lyft's Citi Bike -- it acquired the bicycle rental leader last year -- was receiving some complaints for riders experiencing stronger-than-expected braking force on the front wheel, resulting in dozens of injuries. 

Lyft will replace the potentially dangerous electric bikes with traditional bicycles in the meantime. It's working on a new pedal-assist bike that will hopefully be less problematic. 

Things were relatively quiet on the Wall Street front. Susquehanna analyst Shyam Patil initiated coverage of the stock with a neutral rating, fearing that it will take seven years for Lyft to achieve profitability. His $57 price target is essentially where the shares are now. There should be a lot more activity -- bullish activity -- in the week ahead.

Underwriters participating in an IPO typically wait 25 days before initiating coverage. That window opens this week. What do you think will happen with the 20 firms that sold Lyft shares to their top clients at $72 a pop a little more than three weeks ago? One would logically expect most of them to chime in with bullish ratings and price targets above the IPO price, a welcome break from the largely bleak outlook from the unbiased firms. The market often sees through the self-serving upbeat initiations, but we're ultimately talking about a week where the bullish headlines will dominate the bearish stories for a change.

Lyft will still have some serious challenges. It's losing a lot of money, and revenue growth will inevitably decelerate from here. However, the growing popularity of Uber and Lyft as modes of transportation is legit. Both business models may have their holes, but if there was ever a week for Lyft bulls to catch a break, it will be this one with Wall Street coming to the rescue. After three weeks of hard rain, the clouds should part for at least a couple of days later this week. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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