With over 22 million active riders per quarter before the pandemic, Lyft (LYFT) built itself into one of the largest global ride-hailing platforms. Lyft stock, like rival Uber stock, is trying to rebound as a coronavirus recovery continues. The long-term picture for ride-sharing and self-driving cars looks compelling. But the pandemic led to a massive slowdown in consumer demand. With the stock’s big move as of late, is Lyft a buy?
Ridership is recovering somewhat as vaccinations help open up the economy. A partnership with Ford (F) to bring a fleet of autonomous vehicles to the streets by the end of 2o21 is boosting shares. Still, Lyft and rival Uber (UBER) face an uncertain future amid changing consumer habits.
But the ride-hailing giants scored an election 2020 win in California, preserving app-based drivers as contract workers. Plus, the coronavirus vaccine rollout is fueling an economic recovery.
Is Lyft stock a buy now? It’s key to analyze the fundamental and technical picture first.
Lyft Stock Up After Self-Driving Deal With Ford
Self-driving cars are coming to Lyft’s vehicle fleet thanks to a partnership with Ford. On July 21, the ride-sharing company made public a deal with the Detroit automaker and Argo AI to launch autonomous vehicles by the end of 2021.
The companies said they plan to debut the AV fleet in Miami this year, with service to follow in Austin in 2022. Lyft passengers will be able to select self-driving cars in defined areas through the app as services come online. The cars will still have two safety drivers to ensure the vehicle is performing correctly as the nascent program rolls out.
“This collaboration marks the first time all the pieces of the autonomous vehicle puzzle have come together this way,” Lyft CEO Logan Green said in a July 21 press release. “Each company brings the scale, knowledge and capability in their area of expertise that is necessary to make autonomous ride-hailing a business reality.”
The deal also comes just months after Lyft sold off its autonomous division to Toyota (TM). Lyft stock jumped 6% on news of the deal. Ford stock also got a boost on the announcement. The companies aim to have 1,000 self-driving vehicles in service by 2026.
Lyft Q1 Results Beat Expectations
Lyft earnings are turning around as the overall recovery gains steam. The ride-sharing giant’s Q1 earnings released May 4 beat estimates thanks to a rebound in demand.
Lyft stock reported an adjusted loss of 35 cents per share on revenue of $609 million. Analysts expected an adjusted loss of 60 cents on revenue of $558.2 million. Lyft reported 13.5 million active riders in the quarter, topping estimates for 12.8 million.
“As the recovery continues, we are confident that we will be able to deliver strong financial results,” CEO Green said in a prepared May 4 earnings statement.
Though Lyft earnings were positive, shares slid more than 6% the day after earnings were released.
Lyft stock is due to report Q2 earnings on Aug. 3. Analysts expect the ride-hailing giant to post a loss of 23 cents per share on revenue of $701.24 million.
Lyft Sells Self-Driving Division
The company announced in early May it’s selling off its self-driving division to Woven Planet, a Toyota Motors (TM) subsidiary. The sale is expected to net the company $550 million in revenue and remove $100 of annualized operating expenses from Lyft’s balance sheet.
Lyft is part of a handful of companies that have recently stepped away from developing autonomous vehicle (AV) technology. Uber sold its AV division to self-driving startup Aurora in December 2020.
“The market for AV technology has grown meaningfully since we first launched Level 5,” CEO Green elaborated on the May 4 earnings call. “This means we now don’t need to develop the technology ourselves to ensure we have access to a competitive market of providers.”
He added the sale would increase Lyft’s future profitability. “The Level 5 transaction will further strengthen our financial position and enable us to continue to focus on the unique value of Lyft’s network,” Green said.
Other large-cap players also invested heavily in the self-driving-car space. E-commerce giant Amazon (AMZN) acquired Zoox, a company that specializes in self-driving robotaxis.
Additionally, Tesla (TSLA) founder Elon Musk says his electric-vehicle company is close to achieving Level 5 — or complete — self-driving-car capabilities.
But most autonomous driving experts have pushed back their timeline for when Level 5 self-driving will be reached.
Lyft Stock, Uber Stock Soar After Prop. 22 Win
Gig economy companies like Lyft and Uber face regulatory pressures. But the two ride-share giants got a huge win as California voters passed a measure known as Proposition 22 in the November 2020 elections.
Earlier last year, California enacted a labor law known as AB5 that targeted the ride-share platforms. That sparked intense backlash among the state’s freelancers — and not just Uber and Lyft drivers.
The law mandates that companies reclassify many independent contractors as full-time employees. It makes them eligible for health benefits, minimum-wage guarantees, workers’ compensation and a slew of other labor protections.
Fast-forward to Election Day, and California voters rolled back those regulations for the ride-share companies by approving Prop. 22. The state ballot measure provides wage protections and other benefits to app-based drivers while maintaining their independent contractor status.
Lyft stock and Uber stock soared on the news.
“The underlying business models for Uber and Lyft were hanging in the balance if Prop. 22 did not pass in California,” Wedbush analyst Daniel Ives wrote in a Nov. 4 note to investors.
He described the vote as a “landmark victory” for Lyft and Uber stock. The ride-share companies derive a significant portion of their revenue from California riders and delivery services.
Lyft Stock Fundamental Analysis
To determine whether Lyft stock is a buy now, fundamental and technical analysis is key.
The IBD Stock Checkup tool shows that Lyft stock has a Composite Rating of 36 out of a best-possible 99. The rating means Lyft stock ranks in the lower half of all stocks. That’s in terms of the most important fundamental and technical stock-picking criteria.
In comparison, Uber stock has a Composite Rating of 24.
Lyft stock also has a poor EPS Rating of 19 out of 99. The EPS Rating compares quarterly and annual earnings-per-share growth with all other stocks.
Lyft Stock Technical Analysis
Lyft stock has hit a few road bumps as it tries to establish a new uptrend after hitting a May 13 low of 45.29. Shares had run up some 40% from the beginning of the year to a March 18 high of 68.28. But Lyft stock gave back those gains over the course of April. Shares took an 11% hit that month and broke decisively below the 50-day line for the first time since late January. The stock has been working on a base ever since.
A deal with Ford to launch a fleet of self-driving cars propelled Lyft stock above its 40-week line. Retaking the 10-week line would be the next hurdle for shares to pass as they set up for a potential break above a declining-tops trend line coinciding with the 62 price level.
Another signal to consider? Lyft’s relative strength line. The line compares a stock’s price action with that of the S&P 500. Until last November, the RS line has been in a downtrend since the beginning of Lyft’s trading history. But the RS line has rebounded along with Lyft stock. It’s still well off highs, but moving in the right direction.
Lyft stock is building its first base since its break out in November 2020. At that time, Lyft stock got a boost after the success of Prop. 22 in California and positive vaccine news. Shares of Lyft gapped up more than 26% on Nov. 9 and formed a lopsided cup base with a 41.29 buy point, according to MarketSmith pattern recognition.
Much of that base formed below the 200-day line, which was not a good sign. But Lyft stock kept rising, with positive headlines providing big catalysts.
Lyft: Is It A Buy Right Now?
Even when the pandemic fades and ride hailing regains momentum, Lyft is likely to keep losing money for some time. But investors are eyeing Lyft as an economic recovery play.
Lyft stock has broken its downtrend from its 2019 IPO. It’s still below its IPO price of 72. But Lyft stock has improved dramatically since November 2020.
Bottom line: Lyft stock is not a buy right now, but it could be setting up for a move above a declining-tops trend line. That would potentially be an entry for aggressive traders. However, investors should look at other stocks with stronger fundamentals showing compelling technical action.
Follow Alexis Garcia on Twitter at @IBD_Alexis.
YOU MIGHT ALSO LIKE: