LYFT Inc (LYFT)

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Is Lyft Stock A Buy After Earnings? Here's What Fundamentals, Chart Show
By: Investor's Business Daily | November 16, 2020

With over 22 million active riders per quarter before the pandemic, Lyft (LYFT) built itself into one of the largest global ride-hailing platforms. But Lyft stock, like rival Uber stock, has been a laggard since its public debut in March 2019. The long-term picture for ride-sharing and self-driving cars looks compelling. But the coronavirus lockdowns led to a collapse in consumer demand. But is Lyft a buy after California's passage of Prop. 22?

Ridership somewhat recovered as stay-at-home orders have been relaxed. Still, Lyft and rival Uber (UBER) face an uncertain future amid the ongoing pandemic. That could mean the long path to profitability is now even further down the road for the two competitors.

State labor regulatory reforms are an additional headwind. They threaten to upend the ride-sharing model and could significantly impact the future viability of the ride-hailing companies.

But is Lyft stock a buy now? It's key to analyze the fundamental and technical picture first.

Lyft News: Regulatory Hurdles Threaten Profitability

Gig economy companies like Lyft and Uber are seeing increased regulatory pressure. The two ride-share giants just got a huge win as California voters passed a measure known as Prop. 22.

But first, a bit of background. This year, California enacted a labor law known as AB5 that targeted the ride-share platforms. That sparked intense backlash among the state's freelancers — and not just Uber and Lyft drivers.

The law mandates that companies reclassify many independent contractors as full-time employees. It makes them eligible for health benefits, minimum-wage guarantees, workers' compensation and a slew of other labor protections.

In May, California sued Uber and Lyft for violating the controversial AB5 labor law. On Aug. 10, a California judge issued a preliminary injunction against the two ride-hailing firms. The ruling ordered the companies to immediately stop classifying drivers as independent contractors.

In reaction to the ruling, Lyft announced plans to suspend service in the state. But a California appeals court issued an emergency court order blocking the injunction later that day. The ruling averted a shutdown in service of the popular ride-share apps in the state.

Amid the legal drama, Wedbush analyst Dan Ives described AB5 as "a major gut punch to the gig economy's future growth prospects."

Lyft Stock, Uber Stock Soar After Prop. 22 Win

Fast-forward to Election Day, and California voters rolled back those regulations for the ride-share companies by approving Proposition 22. The state ballot measure provides wage protections and other benefits to app-based drivers while maintaining their independent contractor status.

Lyft stock and Uber stock soared on the news.

"The underlying business models for Uber and Lyft were hanging in the balance if Prop. 22 did not pass in California," Ives wrote in a Nov. 4 note to investors.

He described the vote as a "landmark victory" for Lyft and Uber stock. The ride-share companies derive a significant portion of their revenue from California riders and delivery services.

Lyft Earnings Amid Covid-19 Storm

Lyft stock surged 26% on Nov. 9 amid positive coronavirus vaccine news, just before it reported Q3 earnings on Nov. 10. The ride-hailing company posted an adjusted loss of $1.46 per share on revenue of $499.7 million. Analysts expected Lyft to lose 93 cents a share on revenue of $487.6 million.

One bright spot for Lyft was the increase in active riders. The ride-share platform saw a 44% increase in ridership over the previous quarter.

"Even though ride-share rides are still down from pre-Covid levels, they have meaningfully recovered from the trough we observed in the second week of April," CEO Logan Green said on the Nov. 10 earnings call. "We remain confident that demand will continue to return to our platform as we progress through the recovery and vaccines are approved and become available."

Waymo Partnership 'Critical' To Lyft's Future

Looking ahead, autonomous-vehicle technology could boost revenue and provide a pathway to profitability for the ride-hailing platform.

Lyft in 2017 announced a partnership with self-driving-car company Waymo. The subsidiary of Google parent Alphabet (GOOGL) provides a way to gain a foothold in the self-driving-car industry.

The first commercial rides of the Lyft-Waymo partnership began in 2019 in the Phoenix metro region. Lyft's early move into self-driving-car technology spurred competitor Uber to develop its own self-driving unit that same year.

Uber sank some $7 billion in funds into the development of self-driving technology. That's a big percentage of Uber's $56 billion market cap.

"Our investments in AV (autonomous vehicles) are critical to Lyft's future," CEO Green said to investors during a presentation on Lyft earnings. "We expect that they'll deliver strong returns in the long run despite Covid."

Other large-cap players also invested heavily in the self-driving-car space. E-commerce giant Amazon (AMZN) acquired Zoox, a company that specializes in self-driving robotaxis.

Additionally, Tesla (TSLA) founder Elon Musk says his electric-vehicle company is close to achieving Level 5 — or complete — self-driving-car capabilities.

But most autonomous driving experts have pushed back their timeline for when Level 5 self-driving will be reached.

Lyft Stock Fundamental Analysis

To determine whether Lyft stock is a buy now, fundamental and technical analysis is key.

The IBD Stock Checkup tool shows that Lyft stock has a Composite Rating of 38 out of a best-possible 99. The rating means Lyft stock ranks in the bottom 38% of all stocks. That's in terms of the most important fundamental and technical stock-picking criteria.

In comparison, Uber stock has a Composite Rating of 86.

Lyft stock also has a poor EPS Rating of 7 out of 99. The EPS Rating compares quarterly and annual earnings-per-share growth with all other stocks.

Lyft Stock Technical Analysis

Lyft stock made its Nasdaq debut in March 2019 at 72 a share. It closed its first day of trading at 78.29. Since Lyft's 2019 IPO, Lyft stock has been in a downtrend. It's largely underperformed the overall market.

Take Lyft's relative strength line. The line compares a stock's price action with that of the S&P 500. Aside from brief peaks in July 2019 and late January, the RS line has been in a downtrend since the beginning of Lyft's trading history.

However, Lyft stock has gotten a boost after the success of Prop. 22 in California and positive vaccine news. Shares of Lyft gapped up more than 26% on Nov. 9 and are forming a lopsided cup base with a 41.29 buy point, according to MarketSmith pattern recognition.

Even with its recent surge, Lyft stock is still 27% below its 52-week high. Still, Lyft stock is now above its downward-sloping 200-day line.

Though that's a move in the right direction, growth investors should focus on stocks in strong uptrends and trading above their upward-sloping 50-day and 200-day moving averages.

Lyft: Is It A Buy Right Now?

Despite good news out of the state of California, Lyft faces headwinds from the coronavirus pandemic as it struggles to attain profitability. Lyft stock has yet to break its downtrend since its 2019 IPO.

Bottom line? Lyft stock is not a buy right now, according to IBD analysis. Though shares are forming a cup pattern, the bulk of that base has formed below a downward sloping 200-day line and the base is lopsided.

Lyft stock also has a mediocre Relative Strength Rating of 70. Investors should focus on stocks with a stronger track record of outperforming the market.

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