Should you invest in Uber Technologies' stock, seeing a 30% decrease from its peak?
Shares of Uber Technologies (UBER 4.72%) have been notably decreasing this month, causing concern among investors due to increasing competition and doubts about the company's long-term expansion possibilities. As of now, the stock has declined 2% year-to-date and is roughly 30% lower than its all-time high.
Is this a promising investment opportunity for investors, or are Uber's shares likely to plummet even further?
Investors express pessimism towards Uber's stock
Uber's stock's downturn started on Dec. 5 when Alphabet's Waymo disclosed its plans to expand to Miami. Self-driving vehicles may be available for ride-hailing services by as early as 2026.
The prospect of robotaxis becoming accessible in one of the United States' largest cities seems to be troubling investors, as concerns grow that it could lead to reduced demand for Uber rides. Waymo is already present in various cities, such as Austin, Los Angeles, Phoenix, and San Francisco.
This recent expansion news emphasizes Waymo's potential to challenge Uber's dominance in the ride-hailing sector. Waymo's growth, along with electric-vehicle producer Tesla's intention to produce robotaxis in 2026, highlights Uber's main threat in the short term: new competitors.
Is the risk of robotaxis exaggerated?
Robotaxis pose a threat to Uber, but at this point, it might be premature to be overly worried, considering the uncertainties surrounding self-driving vehicles. High costs, regulatory obstacles, and traffic congestion in many U.S. cities are just a few of the potential challenges that could impact the rollout of the technology. This also explains why Ford CEO Jim Farley is hesitant to believe they'll live up to investors' expectations.
Although Waymo is expanding, it remains relatively small in scale. It's currently recording around 150,000 trips per week, while Uber is averaging 31 million trips per day. It's still too early to predict how much of an impact Waymo and comparable services will have on Uber's business over the long term.
Uber's business continues to grow rapidly and become more profitable
What investors should focus on are the company's actual performance and growth potential. Uber's growth rate has slowed down somewhat in recent years, but it still remains relatively strong at around 20%.
More significantly, the company has transitioned into profitability and is now more appealing as an investment opportunity. During the third quarter, the company reported an operating income of $1.1 billion, a significant improvement from the $394 million it earned in the previous quarter.
Should you purchase Uber stock now?
Uber's share price drop has reduced its valuation to a more modest multiple of 30 times its trailing earnings. Given analyst expectations, the stock is currently trading at 19 times next year's earnings, which is quite advantageous for a company with such robust growth. It's even cheaper than the S&P 500's average forward price-to-earnings multiple of 22.
The fear surrounding robotaxis might be overblown, considering their limited market share and the lingering questions surrounding the technology. This could be a suitable time for investors to consider investing in Uber as the company is achieving strong results at a more reasonable valuation. It may present a lot of untapped potential for investors who buy the stock now.
Despite the concerns about decreasing demand due to self-driving vehicles, such as Waymo's expansion, the high costs, regulatory obstacles, and traffic congestion in many U.S. cities remain challenging for the rollout of robotaxis. Moreover, Uber's growth rate may have slowed down, but it remains strong at around 20%. The company has also transitioned into profitability, showing improved performance and making it a more appealing investment opportunity. As a result, the reduced valuation and analyst expectations make Uber's stock a potentially attractive option for investors seeking robust growth at a reasonable price.
