Ride-hailing services provider Uber Technologies, Inc.’s (UBER - Get Rating) business recovered with the easing of pandemic restrictions and reopening of the economy. In the last quarter, its gross bookings rose 26% year-over-year (32% on a constant currency basis).

For the fiscal fourth quarter, UBER expects gross bookings to grow 23%-27% year-over-year on a constant currency basis, with an anticipated seven percentage point currency headwind, to a range of $30-$31 billion. The company expects its adjusted EBITDA to come between $600-$630 million.

However, the Biden administration has proposed new standards that could make it difficult to classify millions of workers as independent contractors and deny them minimum wage and benefits. This could leave an impact on UBER’s operations and financials.

The stock has gained 21.1% over the past six months to close its last trading session at $28.79. However, it is down 31.3% year-to-date and 32.5% over the past year.

Here are the factors that could affect UBER’s performance in the near term:

Weakening Cash Position

For the fiscal third quarter ended September 30, UBER’s net cash provided by operating activities decreased 29.6% year-over-year to $432 million. Net cash provided by financing activities declined 86.4% from the prior-year quarter to $212 million. Cash and cash equivalents and restricted cash balance stood at $8.63 billion at the end of the quarter, down 11.8% year-over-year.

Stretched Valuation

In terms of its forward EV/EBITDA, UBER is trading at 37.06x, 246.4% higher than the industry average of 10.70x. The stock’s forward Price/Sales multiple of 1.76 is 35.3% higher than the industry average of 1.30.

In terms of forward Price/Book, it is trading at 7.86x, 195.2% higher than the industry average of 2.66x. Its forward Price/Cash Flow multiple of 42.77 is 234.7% higher than the industry average of 12.78.

Poor Profitability

UBER’s trailing-12-month EBITDA margin and net income margin of negative 4.61% and 30.45% compare to the industry averages of 13.02% and 6.74%. Its trailing-12-month ROCE, ROTC, and ROTA of negative 87.66%, 6.31%, and 28.43% compare to their respective industry averages of 14.15%, 6.83%, and 5.29%.

POWR Ratings Reflect Bleak Prospects

UBER’s POWR Ratings reflect the company’s bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UBER has a Value grade of D, in sync with its stretched valuation. The stock also has a D grade for Stability, consistent with its five-year beta of 1.13.

In the 76-stock Technology – Services industry, it is ranked #57.

Click here to see the additional POWR Ratings for UBER (Growth, Momentum, Sentiment, and Quality).

View all the top-rated stocks in the Technology – Services industry here.

Bottom Line

The Biden administration’s new standards could affect UBER’s cost structure. The company shows a decline in its cash balance. Moreover, its negative ROCE is concerning. With analysts expecting its EPS to decline substantially in the current year, the stock might be best avoided now.

How Does Uber Technologies, Inc. (UBER) Stack up Against Its Peers?

While UBER has an overall POWR Rating of D, one might consider looking at its industry peers, Jabil Inc. (JBL - Get Rating) and Celestica Inc. (CLS - Get Rating), which have an overall A (Strong Buy) rating, and Sanmina Corporation (SANM - Get Rating) and PC Connection, Inc. (CNXN - Get Rating), which have an overall B (Buy) rating.

UBER shares were trading at $28.79 per share on Thursday afternoon, up $0.71 (+2.53%). Year-to-date, UBER has declined -31.34%, versus a -14.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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