Food delivery service DoorDash (DASH 2.17%) is off to a rocky start on the public stock market. The company boosted the launch price for its initial public offering (IPO) from $80 to $90 per share, pulled the trigger at $102 per share, and surged as high as $195.50 per share in its first day of trading. Early buyers were left nursing a hangover from that explosive debut and DoorDash's stock fell all the way back to $136 per share in three weeks.
The stock caught fire again last week, rising nearly 40% above the lows of early January. Is it time to jump aboard the DoorDash bandwagon today?
The bull case for DoorDash
There's a lot to like about DoorDash.
- The company reported a respectable revenue haul of $2.2 billion over the last year, up from $885 million in fiscal year 2019. That's an athletic 150% leap.
- Bottom-line earnings are consistently printed in red ink but DoorDash reported positive free cash flows and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) across the first three quarters of 2020. In other words, DoorDash is generating modest cash profits while maximizing its tax deductions. Low or negative earnings aren't always bad when you think about the tax implications.
- DoorDash is an established leader in a market that is experiencing a golden age right now. Take-out and delivery dining skyrocketed during the lockdowns and safer-at-home orders of 2020. Consumers may hold on to these ideas as the pandemic fades out over the next couple of years. In that case, DoorDash enjoyed a game-changing boost last year that may have created a food delivery leader for the long haul.
The dark side of the coin
It's not all wine and roses, of course. DoorDash is also an incredibly expensive stock by every metric. Shares are changing hands for 19 times trailing sales. Home deliveries may not hold on to last year's influx of new customers in the long run, and rivals such as Uber (UBER 1.74%) and Postmates are putting up a fight for DoorDash's share of the market.
There's a lot of uncertainty here. Prospective DoorDash investors can't build their investment theses on years and years of financial reports, since the company went public just last month and the pre-IPO filings only presented financial data for 2019 and 2020.
Take it easy with this one
I generally don't recommend jumping feet-first into recent IPOs. The volatile nature of consumer-facing businesses during the ongoing COVID-19 pandemic only reinforces my skepticism. DoorDash needs to prove its worth in a normal market before I'm ready to get excited about the stock. It's OK if you still want to get in early on what might turn out to be a high-growth story for the ages, but keep your early buys reasonably small.
Buying DoorDash stock today is more like speculating than investing. I will gladly watch this one from the sidelines for a year or two.