Originally named Zimride, Inc., the on-demand ridesharing company Lyft, Inc. (LYFT) operates multimodal transportation networks to provide riders with personalized access to various transportation  options. Although shares of LYFT have rallied 141.9% over the past six months on an uptick in demand for ridesharing services thanks to progress with mass COVID-19 vaccinations nationwide. The stock has lost 8.7% over the past month.

The resurgence of coronavirus infections could negatively impact the company’s sales in the near term, however.  Also, increasing competition from Uber, Inc. (UBER), which spends substantial amounts on marketing and other incentives to grow its customer base, could be a big challenge in LYFT’s comeback.

Here is what we think could influence LYFT’s performance in the near term:

Pandemic Headwinds

Even though  the demand for ride-hailing businesses has picked up somewhat  this year, after being hit hard last year by pandemic-induced restrictions, these companies  have lost a significant percentage  of their customer base. Since many individuals remain wary of using ride-sharing services amid fears of a resurgence of COVID-19 infections, it could be difficult for LYFT to claw its  way out of the financial pit into which it was cast by the pandemic. Although the stock is trying to rebound amid the vaccine rollout, LYFT’s prospects still look bleak, and the company may not generate a profit soon.

Weak Financials and Profitability

LYFT’s revenues have declined 44% year-over-year to $569.9 million in the fourth quarter, ended December 31, 2020, due primarily  to a surge in COVID-19 cases and the reintroduction of restrictive measures. The company reported an adjusted EBITDA of negative $150.0 million. Also, its net loss was  $458.2 million, compared to a net loss of $356.0 million in the fourth quarter of 2019.

The company’s trailing-12-month gross profit margin of 22.5% is 21.8% lower than the industry average 28.8%. LYFT’s 0.5% asset turnover ratio  is 39% lower than the industry average  0.8%. And  its trailing-12-month levered free cash flow margin and EBIT margin came in at negative 34% and 74.4%, respectively.

Stretched Valuation

In terms of trailing-12-month EV/Sales, LYFT is currently trading at 7.94x, 272.8% higher than the industry average 2.13x. Its forward Price/Sales multiple of 6.53 is 316% higher than the industry average 1.57. Also, the stock’s 16.18 forward Price-to-Book ratio is 421.2% higher than the industry average 3.10.

POWR Ratings Reflect Bleak Prospects

LYFT has a D overall rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. LYFT has a D grade for Value and Quality. This justifies the stock’s premium valuation and low profitability.

Also, it has a C grade for Momentum, which is consistent with the stock’s negative price returns over the past month.

In addition to the grades we’ve highlighted, one can check out additional LYFT ratings for Sentiment, Stability and Growth here.

LYFT is ranked #71 of 77 stocks in the C-rated Technology – Services industry.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

LYFT’s monthly active riders declined 45.2% year-over-year to 12.5 million in the fourth quarter of 2020. As the pandemic continues to cast a long shadow over the ride-sharing industry, LYFT’s staggering losses and poor profitability amid rising competition from its rival can hold back its growth in the near term.

Click here to check out our Software Industry Report for 2021

LYFT shares were trading at $60.39 per share on Thursday morning, down $0.35 (-0.58%). Year-to-date, LYFT has gained 22.92%, versus a 11.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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