It's been an up-and-down ride so far for DoorDash (DASH -0.40%) shareholders since the third-party delivery platform's initial public offering (IPO) in December 2020. The stock priced above its range and yet it still soared 85% in its debut. However, it only gained 4% in 2021 and has fallen more than 60% in 2022.

But what about 2023? Let's explore the cases for buying and selling DoorDash stock -- and why, ultimately, doing nothing might be the best course of action.

The case for selling DoorDash stock

Some people suggest selling DoorDash stock because its business lacks a competitive advantage. However, I'm not one of those people.

Grubhub had nearly a decade head-start over DoorDash in the food delivery space. And Uber enjoyed far greater brand recognition. And yet somehow, DoorDash emerged from obscurity and has generated over $50 billion in trailing-12-month order volume despite its alleged competitive shortcomings.

While the space is competitive, DoorDash has clearly carved out its spot by focusing on smaller, suburban markets, whereas the other players crowded into tight urban zones.

However, DoorDash's rise to prominence didn't result in attractive cash flows, and that's my top reason to consider selling this stock. Some investors might contend that the company has positive cash from operations, which is true. But operating income is negative and deteriorating.

DASH Cash from Operations (TTM) Chart

DASH Cash from Operations (TTM) data by YCharts

The disparity between operating cash flow and operating income is entirely explained by stock-based compensation. Shares of DoorDash aren't cash money, so they don't affect operating cash flow. However, it's still a real expense for shareholders. The company has paid $609 million in stock-based compensation through the first nine months of 2022 -- and that needs to be accounted for on the income side of the equation.

Over the next three years, DoorDash could pay another $2.8 billion in stock-based compensation, according to filings with the Securities and Exchange Commission (SEC). This is roughly the same pace it's paid out this compensation in 2022. Therefore, this isn't an issue that's likely to lessen.

The case for buying DoorDash stock

That said, I think there's a case to be made for buying DoorDash stock if you understand contribution margin. Businesses have fixed and variable costs. Contribution profit refers to what's left after accounting for the variable cost of revenue per transaction. For unprofitable businesses like DoorDash, you want to see contribution profit rising so it can overcome its fixed expenses and turn a profit.

The idea is that each incremental transaction adds to your contribution profit and moves you closer to overall profitability.

Since going public, order volume on DoorDash has increased sequentially every quarter. And its contribution profit has increased sequentially for four consecutive quarters. Translation: DoorDash is indeed becoming more profitable with scale over the past year. If DoorDash's profitability improved with volume in 2022, then it stands to reason the trend can continue in 2023 with more volume again.

DoorDash does have a path to greater volume on its platform. Food delivery may be hitting a ceiling. But the company is doubling down on non-food delivery through its recent partnerships with Dick's Sporting Goods, Grocery Outlet, Tractor Supply Company, and more. It's reasonable to assume that these partnerships will keep pushing order volume on DoorDash higher, allowing it to benefit from efficiencies of scale.

Why doing nothing might be best

From a balance sheet perspective, DoorDash is on solid ground. The company has over $4 billion in cash, cash equivalents, and both long-term and short-term marketable securities. It also has no long-term debt. So liquidity isn't a concern for DoorDash.

From a business perspective, DoorDash is also doing well. In the third quarter of 2022, total orders on the platform were up 27% year over year -- an impressive feat considering its strong 47% growth in the year-ago period. And Q3 gross order volume was up 30% year over year as users spent more per order, on average.

Because of its business momentum and balance sheet strength, I'd hold DoorDash stock for 2023 if I owned it. As noted, the company's contribution profit is improving. And its new partnerships could be the key to improving its profitability.

That said, I don't own DoorDash stock and I don't plan to buy it before or during 2023. I believe the company is still a long way away from reaching a big-enough scale to turn a profit, even if its contribution profit is improving. Moreover, the noted stock-based compensation will likely remain a headwind for shareholder returns even if the company executes flawlessly in the coming year.

To summarize, I would hold if I already owned DoorDash stock. But I wouldn't buy it today.