Market Crash? No Problem for DoorDash Stock's Impressive Earnings

August 04, 2024 at 07:00 AM EDT

A view of a DoorDash pick up here sign on a table, and food in the foreground

Investors are now worried about the market crashing, with the U.S. 10-year treasury bond finally breaking below a 4% yield for the first time since the Federal Reserve (the Fed) started hiking interest rates to combat inflation and a red-hot economy. The S&P 500 is trading lower by up to 1.5% as weak economic data starts coming in for August. The hopes of an interest rate cut, as high as they may be, aren’t enough to keep the market afloat.

According to the CME’s FedWatch tool, the Fed is over 90% certain to cut interest rates by September 2024. However, that won’t be soon enough, considering the ISM Manufacturing PMI index just delivered its 21 consecutive contraction reading, and the employment situation report (NFP) just delivered another blow to the economy. However, one stock is bringing a double-digit upside in the middle of the worst economic environment in the cycle today.

That stock is DoorDash Inc. (NASDAQ: DASH). Its shares are trading higher by as much as 10% to defy the weak jobs and manufacturing data, a bullish reaction to the company’s second-quarter 2024 earnings results. Most expected a consumer discretionary stock like DoorDash to suffer from inflation and unemployment pressures. Still, this company had much more to give.

DoorDash Stock Paves the Way to Multi-Bagger Potential

Most in the market would look to Uber Technologies Inc. (NYSE: UBER) when finding stock in the food delivery industry. Still, that company has already gone through its growth equity phase and is now on large capitalization status. Uber's $122.6 billion market cap shows what could be ahead for DoorDash, which is only a $48.3 billion company.

One main characteristic that makes DoorDash a young company is its financials, particularly the cash flow statement. Posting net losses is commonplace for a stock like this one, as it typically burns through cash to make ends meet. It's the riskiest part of the cycle but potentially the most rewarding.

Even as revenue grew by 23% over the past 12 months, driven by a 19% increase in delivery orders, DoorDash still posted net operating losses of $201 million, which are still better than the $211 million lost last year. Of course, this leads to a net loss per share of $0.38, far from what investors want to see.

However, the real upward trend is found in the business's operating cash flows, which reached just over $1 billion compared to only $790 million last year. Adjusting for capital expenditures of $40 million, investors can celebrate that DoorDash is on its way to consistent positive free cash flow status.

It's only a short time before this is reflected in the company's earnings per share (EPS), and Wall Street knows this. Analysts forecast over 1,500% EPS growth in the next 12 months for DoorDash, expecting to see $1.18 per share for a significant swing from today's net losses.

Significant Upside Remains for DoorDash Stock

Leaning on this bullish evidence of DoorDash's results, those at Truist Financial felt comfortable enough to make their optimistic views public. Right after the earnings release, they stepped in to boost DoorDash stock's price target up to $150 a share, where it previously had a valuation of $145.

To prove these new targets right, DoorDash needs to rally by an additional 28.3%, even accounting for the single-day 10% rally that came as the initial reaction to the earnings release. These analysts weren't the only ones on Wall Street looking to relay how bullish they are on DoorDash stock.

Up to $4 billion in institutional capital made its way into DoorDash stock over the past 12 months, with a significant chunk coming from those at Price T Rowe Associates and Janus Henderson Group, which respectively reached a net investment of $753.3 million and $475.8 million. All told, DoorDash has a 90.6% institutional ownership rate.

There is one additional technical point that investors can lean on today, one that solidifies the bullish trends ahead for DoorDash stock. As a sign of capitulation coming from the bearish side of the equation, DoorDash stock's short interest collapsed by 16.1% in the past month, opening the way for more bullish investors to take their place.

Decrypting how markets feel about DoorDash stock today can also benefit investors looking to determine what might happen. To do this, investors need to check if the stock is a positive outlier among its peer group; this is done through valuation metrics.

On a price-to-book (P/B) basis, DoorDash's 6.9x multiple commands a premium of 40% over the business services industry's average valuation of 4.9x today. There's always a good reason why stocks trade at valuation premiums, and now investors have a better idea.

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Market Crash? No Problem for DoorDash Stock's Impressive Earnings

DoorDash Stock Paves the Way to Multi-Bagger Potential

Significant Upside Remains for DoorDash Stock

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