San Francisco-based Lyft Inc. (LYFT) is an on-demand ride-sharing company that manages multimodal transportation networks to give riders individualized access to various transportation alternatives. After delivering solid third-quarter results last month, the company's shares jumped more than 8% in price.

LYFT's revenues grew 73% year-over-year to $864.4 million in its fiscal third quarter, ended September 30, 2021. The company witnessed an 11% rise in active passengers during the quarter, although its ridership remained 35% lower than pre-pandemic levels. Its adjusted net income rose 106.3% from the year-ago value to $17.8 million. Furthermore, the company's EPS surpassed the consensus estimate by 266.7%.

However, closing yesterday's trading session at $41.15, LYFT's shares have retreated 27.9% in price over the past nine months and 16.5% over the past three months. In addition, the recently discovered COVID-19 omicron variant might have an acute, detrimental impact on the company's sales. Also, increased competition from Uber Technologies, Inc. (UBER), which spends substantial amounts on marketing and other incentives to build its client base, could pose a major hurdle to LYFT's rebound to pre-pandemic levels.

Here is what could shape LYFT's performance in the near term:

Industry Challenges

Even though demand for ride-hailing services has increased slightly this year, after being hit severely by pandemic-induced restrictions last year, companies in this space have lost a major portion of their user base. Since many people are still cautious about utilizing ride-sharing services due to rising COVID-19 cases and the emergence of the highly transmissible omicron variant, LYFT could struggle to return to its pre-pandemic operational levels.

Mixed Profitability

LYFT's 32.9% gross profit margin is 10.7% higher than the 29.7% industry average. Also, its 2.83% CAPEX/Sales is 12.6% higher than the 2.51% industry average.

However, LYFT's 0.57% trailing-12-months asset turnover ratio is 27.8% lower than the 0.79% industry average, and its ROA, ROC, and net income margin are negative 25.1%, 28.6%, and 43.1%, respectively. Furthermore, its trailing-12-months EBIT margin is negative 45.1% compared to the 9.8% industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the 20 Wall Street analysts that rated LYFT, 15 rated it Buy, and five rated it a Hold. The 12-month median price target of $70.76 indicates a 72% potential upside. The price targets range from a low of $58 to a high of $95.

Lofty Valuations

In terms of forward Price/Book, the stock is currently trading at 5.86x, which is 106.6% higher than the 2.83x industry average. Also, its 3.93x forward EV/Sales multiple is 101.8% higher than the 1.95x industry average. Furthermore, LYFT's 4.10x forward Price/Sales of is 158.1% higher than the 1.59x industry average.

POWR Ratings Reflect Uncertainty

LYFT has an overall C rating, which equals neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. LYFT has a D grade for Momentum and Stability. The stock is currently trading below its 50-day and 200-day moving averages of $50.33 and $55.03, respectively, which is in sync with its momentum grade. LYFT’s 1.90 beta is consistent with the Stability grade.

In addition, the company has a C grade for Value which is justified given its higher-than-industry valuation.

Of the 75 stocks in the D-rated Technology - Services industry, LYFT is ranked #38.

Beyond what I have stated above, one can view LYFT ratings for Growth, Quality, and Sentiment here.

Bottom Line

LYFT recorded strong revenue growth in its last reported quarter. However, the company is still struggling to reach its pre-pandemic level of active passengers. In addition, rising uncertainties surrounding the newly emerged COVID-19 variant and increasing competition could hamper the company's growth in the near term. So, we believe investors should wait for its prospects to stabilize before investing in the stock.

How Does LYFT Inc. (LYFT) Stack Up Against its Peers?

While LYFT has an overall C rating, one might want to consider its industry peer, Celestica Inc. (CLS), and Jabil Inc. (JBL), having an overall A (Strong Buy) rating.

LYFT shares were trading at $39.08 per share on Friday morning, down $2.07 (-5.03%). Year-to-date, LYFT has declined -20.46%, versus a 22.61% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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