What happened
Shares of food delivery service DoorDash (DASH 1.13%) fell in early trading on Dec. 14, slipping just over 12% in the first hour. That adds to the losses the stock has seen each day following its Dec. 9 debut. But when you look at the big picture here, the slow trickle lower makes total sense.
So what
DoorDash was a hotly anticipated IPO. When it priced on Dec. 8, the dollar figure attached to its stock was $102 per share. However, in its first day of trading it closed at just over $189 per share. In other words, in its first day on the New York Stock exchange, DoorDash rose a massive 85% or so.
Image source: Getty Images.
While DoorDash is a fast-growing company in what is currently a hot niche thanks to the coronavirus, that swift gain is likely pricing in a lot of good news. Initial public offerings often trade in wild fashion when they first appear on an exchange, as investor enthusiasm and a good story can easily overtake financial reality. For example, some industry watchers have suggested that Uber Technologies, which also has a food delivery service, is cheaper, relatively speaking, and, perhaps, equally well positioned to benefit from growth in takeout and delivery.
Now what
Essentially, early investors in DoorDash appear to be booking some profits. After a one-day gain of 85% or so, that's probably not a bad call given that the hype surrounding an IPO usually fades over time. The key takeaway here, however, is that investors need to look past the IPO story and carefully consider if DoorDash's prospects are really as good as the stock price suggests. There might very well be a better option for playing the same space already available. In fact, there are even some pretty good reasons to avoid the delivery space altogether when you really dig into the story deeply enough. All in, investors looking at DoorDash should tread carefully.
