Uber (UBER 2.28%) is perhaps the most well-known start-up to come out of Silicon Valley in the last 15 years. Used by hundreds of millions around the globe, the ride-sharing, delivery, and mobility platform is entrenched in many cities around the world. But with a rocky corporate history and no consistent profit generation, Uber's stock has struggled to perform ever since going public in 2019, with shares down around 45% since that time period. However, as many smart investors know, a beaten-down stock can be a great opportunity, as long as the business is still set up to succeed over the long term.

With the stock down almost 50% this year, should you consider buying shares of Uber?

Solid Q1 results

As we climb out of the COVID-19 pandemic -- especially in western markets -- Uber has recovered a lot of its mobility riders. In the first quarter of this year, gross bookings (the number of dollars spent on its services) grew 35% year over year to $26.4 billion. This translated to $6.85 billion in revenue, up 136% year over year. Revenue growth is outpacing gross bookings growth because of a reclassification of revenue in the United Kingdom, an acquisition of Transplace for its freight division, and lapping some one-time accruals because of law changes in the United Kingdom. If we look at gross profit, a better measure of top-line growth, it grew 137% year over year in Q1, which shows the higher take-rates Uber is achieving with its mobility, delivery, and freight platforms.

The highlight of Q1 was the recovery of mobility and ride-sharing gross bookings, which grew 58% year over year to $10.8 billion. For potential investors, this is nice to see as the segment got hit hard during the pandemic. Conversely, Uber's delivery segment grew like gangbusters over the last few years with many people stuck inside their homes. Delivery is the largest segment at Uber, generating $13.9 billion in gross bookings last quarter, up 12% year over year. 

Lastly, we have Uber Freight, Uber's third and much-smaller operating segment. The division, which helps match truck drivers and shippers more efficiently, generated $1.8 billion in gross bookings last quarter. This was up from only $302 million in gross bookings in the prior year. Some of this growth is coming from the increased adoption of Uber Freight's platform, but a lot comes from the recent $2.25 billion acquisition of Transplace, another logistics technology company. The combination of Uber Freight and Transplace will make the division one of the largest digitally enabled shipping carriers in the world, and it should be set up to grow for years to come.

Still searching for profits

There's a lot to like about Uber's growth over the past few quarters. Mobility has recovered nicely, Freight seems to be hitting exponential growth, and Delivery keeps chugging along. But there's one thing Uber still cannot do, and that is turn a profit.

In Q1, the company had a net loss of $5.9 billion. A lot of this came from unrealized losses on equity investments, but even excluding this, operating loss was still $482 million. This should be concerning for investors; if a company of Uber's size (over $100 billion in annual gross bookings) cannot generate a profit, when will it ever be able to?

To be fair, if we look at Uber's free cash flow trajectory, it has made great progress over the past few years. Around the start of 2020, it was burning over $4 billion in cash a year. Now, it is "only" burning around $108 million. Investors need to hope this trend continues.

UBER Free Cash Flow Chart

UBER Free Cash Flow data by YCharts.

Verdict: Should you buy?

As of this writing, Uber trades at a market cap of $44.3 billion. With no consistent record of profitability or positive cash flow, it is hard to value the stock. However, with $9.7 billion in trailing gross profit, the stock trades at a price-to-gross profit (P/GP) of 4.57. This is very reasonable compared to other stocks in the S&P 500, which have an average P/GP of 6.2. If Uber can reign in its expenses and run a leaner organization while still growing its gross bookings, the company could start generating healthy levels of cash flow a few years from now.

If you believe free cash flow will continue marching higher and get close to $4 billion-$5 billion a year this decade, it could be smart to buy Uber at a market cap of $44.3 billion. If not, it is best to stay away from the company, even with shares down so much in 2022.