Is Uber now cheap enough to buy stocks?

Uber (UBER 0.60%) is perhaps the most well-known start-up to emerge from Silicon Valley in the past 15 years. Used by hundreds of millions of people around the world, the carpooling, delivery and mobility platform is located in many cities around the world. But with a checkered corporate history and no consistent earnings generation, Uber shares have struggled to perform since their IPO in 2019, with shares down around 45% since that time. However, as many savvy investors know, a beaten stock can be a great opportunity, as long as the company is still set up for long-term success.

With nearly 50% down this year, should you consider buying Uber stock?

Solid results in the first quarter

As we emerge from the COVID-19 pandemic – particularly in Western markets – Uber has recovered many of its mobility riders. In the first quarter of this year, gross bookings (the number of dollars spent on its services) rose 35% year-over-year to $26.4 billion. This translated into revenue of $6.85 billion, up 136% year over year. Revenue growth outpaces gross bookings growth due to a UK revenue reclassification, an acquisition of Transplace for its freight division and the amortization of certain one-time charges due to legislative changes in the UK -United. If we look at gross profit, a better measure of revenue growth, it was up 137% year-over-year in the first quarter, showing the higher turnouts Uber is achieving. with its mobility, delivery and freight platforms.

The highlight of the first quarter was the recovery in mobility and ridesharing gross bookings, which grew 58% year-over-year to $10.8 billion. For potential investors, this is nice to see as the segment has been hit hard during the pandemic. Conversely, Uber’s delivery segment has grown like gangbusters over the past 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.

Finally, we have Uber Freight, Uber’s third and much smaller operating segment. The division, which helps connect truckers and shippers more efficiently, generated $1.8 billion in gross bookings last quarter. This figure was up from $302 million in gross bookings the previous year. Some of that growth comes from increased adoption of Uber Freight’s platform, but much of it 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 digital ocean carriers in the world, and it should be set to grow in the years to come.

Always looking for profit

There’s a lot to like about Uber’s growth over the past few quarters. Mobility has recovered well, freight seems to be growing exponentially and delivery continues to progress. But one thing Uber still can’t do is make a profit.

In the first quarter, the company posted a net loss of $5.9 billion. Much of that came from unrealized losses on equity investments, but even excluding that, the operating loss was still $482 million. This should be of concern to investors; If a company the size of Uber (over $100 billion in annual gross bookings) can’t turn 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 strides over the past few years. By early 2020, he was burning over $4 billion in cash a year. Now it “only” burns about $108 million. Investors should hope that this trend will continue.

UBER Free Cash Flow data by YCharts.

Verdict: Should you buy?

As of this writing, Uber is trading at a market capitalization of $44.3 billion. Without a consistent track record of profitability or positive cash flow, it is difficult to value the stock. However, with a gross profit of $9.7 billion, the stock trades at a price-to-gross earnings (P/GP) ratio of 4.57. This is very reasonable compared to other stocks in the S&P500, which have an average P/GP of 6.2. If Uber can control spending and run a lean organization while growing gross bookings, the company could start generating healthy cash levels in a few years.

If you think free cash flow will continue to grow and reach nearly $4-5 billion a year in this decade, it might be a good idea to buy Uber at a market cap of $44.3 billion. . Otherwise, it’s best to stay away from the company, even with declining stocks in 2022.