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2020 was shaped by unprecedented global events, but for avid market watchers it was also characterized by blockbuster IPOs.
You can certainly put DoorDash (DASH) on the list of companies who made glitzy market entries. Shares accrued 86% of gains in the food delivery specialist’s debut session, immediately prompting the question -- is DoorDash already overvalued?
RBC analyst Shweta Khajuria came out this week with an answer. The analyst initiated coverage on DASH with a Sector Perform (i.e. Hold). rating. Khajuria anticipates shares to stay range-bound for the foreseeable future, as his $135 average price target indicates. (To watch Khajuria’s track record, click here)
For one, there are inroads to be made in a massive TAM (total addressable market) worth $600 billion and still relatively untapped. Online food delivery services accounted for only 4% of total restaurant spend in 2019, providing the company with “significant runway for growth with powerful secular tailwinds.”
It doesn’t hurt that DASH is also the category’s clear market leader. As of October 2020, the company had a 50% share of the U.S.’ online food delivery industry – a significant leap from the 17% share it held back in 2018. Additionally, surveys indicate that all participating parties in the food chain – from consumers to merchants to Dashers (i.e., drivers) believe Dash boasts a “strong value proposition.”
However, as with many aggressive growth companies, DASH has a “history of operating losses.” And while revenues increased this year, Covid-19 impacted consumers’ eating habits, and the shelter in place mandates played a significant part in the topline growth. Additionally, while Dash is currently the industry leader, the food delivery category is highly competitive, with other players vying for market share in a low margin industry.
Therefore, when looking at DASH from an investing perspective, Khajuria notes there are certain elements to consider at present.
“[We] think there are potential overhangs with regard to the sustainability of Revenue growth, especially in the back half of 2021, and the ability to continue generating positive Adj. EBITDA once COVID-related accelerants begin to dissipate.”
Looking at the consensus breakdown, DASH currently has a Moderate Buy from the analyst consensus, based on 5 Buys and 10 Holds. The projection is for upside of ~11% in the coming months, given the average price target clocks in at $160.92. (See DASH stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.