DASH

DoorDash, Inc.

63.12
USD
-6.38%
63.12
USD
-6.38%
56.67 257.25
52 weeks
52 weeks

Mkt Cap 21.01B

Shares Out 311.60M

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DoorDash Is Buying Its Stock: Should Investors Buy Too?

DoorDash (NYSE: DASH) has been one of the surprising stories coming out of pandemic-induced lockdowns. Of course, sales and the number of customers surged during lockdowns, when restaurants were closed to in-person diners. But sales have remained elevated even as restaurants have reopened. However, despite sustained customer orders, DoorDash is still losing money on the bottom line. That has been crucially punishing to its stock price, as the market has shunned unprofitable growth stocks. The stock is down 72% off its highs reached in late 2021. However, management thinks the selling is overdone and said the company would be buying back its stock. Let's consider if investors should follow suit and buy DoorDash stock. Revenue has exploded for DoorDash Indeed, DoorDash has experienced remarkable revenue growth over the past several years. From 2018 to 2021, revenue exploded from $291 million to $4.9 billion. Revenue more than tripled for two straight years before growing by 69% in 2021. The screaming popularity of its food delivery business is due to the fantastic convenience it adds to people's lives. Consider a stay-at-home mom with young children. A trip to the grocery store could be a mission: getting the kids in and out of car seats, folding and unfolding a stroller, and then trying to retrieve the items on the shopping list. Paying DoorDash a few dollars to do your shopping and deliver it to your doorstep is a relief. Certainly, you can think of more cases that benefit from the service. The challenge for DoorDash is to offer this service at a price high enough to stem losses on the bottom line. In its most recent quarter, which ended on March 31, DoorDash lost $167 million on the bottom line, up from a loss of $110 million during the same quarter last year. This is despite revenue increasing from $1.1 billion to $1.5 billion in that time. The losses concern investors, who doubt if the company will ever become profitable. It has shown limited economies of scale so far, despite the massive revenue growth. Rapid food delivery is not a business that lends itself well to scale economies. After all, a single Dasher can only make one or two deliveries in an hour. The goal, it seems, is to have so many customers making so many orders that Dashers can pick up several orders collectively and deliver to the same apartment or street all together. DoorDash stock is not cheap Regardless, management is confident in its prospects. It said it would be buying back $400 million of its stock. To put that figure into context, DoorDash's market capitalization is $23.8 billion as of this writing. The announcement could send a signal to investors that the stock is undervalued. Still, trading at a price-to-sales of 4.4 and a price-to-free cash flow ratio of 91.6, DoorDash stock is not cheap. However, for those bullish on DoorDash's prospects, the stock has scarcely been priced lower on these metrics. But investors would be prudent to wait for a further pullback in the share price before buying DoorDash stock. 10 stocks we like better than DoorDash, Inc. When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and DoorDash, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of April 27, 2022 Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Inc. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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