On Tuesday, Wolfe Research initiated coverage on DoorDash Inc. (NASDAQ: NASDAQ:DASH) stock with an Outperform rating and a price target of $130.00. The research firm's positive stance is rooted in the company's robust fundamental outlook for the current and following year. The core U.S. restaurant business of DoorDash is experiencing strong demand trends, and both unit economics and purchase frequency are on the rise.
The analyst noted that growth catalysts for DoorDash include the expansion into new verticals and international markets. Additionally, margins are expected to expand, benefiting from the company's strategic investments. DoorDash's consistent performance in market share gains and product innovation was also highlighted as a key factor behind the optimistic rating.
Wolfe Research's price target of $130 is based on an enterprise value to EBITDA (EV/EBITDA) multiple of 25 times the projected EBITDA for the fiscal year 2025. This valuation represents a premium compared to the average multiple of 12.9 times within the company's comp group. The firm justifies this premium by pointing to DoorDash's leadership position and its growth trajectory.
For comparison, DoorDash's shares are currently trading at an EV/EBITDA multiple of 18.6 times the estimated EBITDA for the fiscal year 2025, which is significantly lower than its five-year historical median of 40.5 times.
Wolfe Research anticipates that there is potential for upward revisions in estimates, particularly regarding EBITDA, and they believe that the valuation on a growth-adjusted basis is not excessive.
In other recent news, Doordash has reportedly halted discussions with UK-based Deliveroo (OTC:DROOF) concerning a potential acquisition due to disagreements over valuation. Concurrently, Dada Nexus Limited, a key player in China's on-demand retail and delivery market, reported a revenue shortfall for Q1 2024, causing concern among investors.
Meanwhile, the Massachusetts Supreme Judicial Court is set to hear arguments that could redefine the employment status of app-based drivers for companies such as Uber (NYSE:UBER), Lyft (NASDAQ:LYFT), and DoorDash.
Doordash also faced a downgrade from BMO Capital, which reduced its price target to $127 from $138 due to concerns about the company's EBITDA margins for Q2 2024. Despite this, BMO maintained an Outperform rating, citing robust growth in monthly active users and order frequency.
Similarly, Benchmark adjusted its outlook on DoorDash, lowering its price target to $150 from $165, but still maintained a Buy rating. These adjustments reflect recent developments in the companies and the wider industry.
InvestingPro Insights
As Wolfe Research initiates coverage on DoorDash with an Outperform rating, it's crucial to consider the financial health and market sentiment surrounding the company. According to recent InvestingPro data, DoorDash holds a market cap of $43.2 billion, a significant indicator of its size and market influence. Despite not being profitable over the last twelve months, analysts are expecting a turnaround, predicting the company will be profitable this year, which aligns with Wolfe Research's optimistic outlook.
InvestingPro Tips suggest that DoorDash's balance sheet is robust, holding more cash than debt, and liquid assets exceed short-term obligations, providing financial flexibility. However, the stock has experienced a substantial price drop of over 21% in the last three months, which may present a buying opportunity for investors believing in the company's long-term growth narrative. The stock's volatility could be a consideration for risk-averse investors, but for those looking for growth potential, DoorDash's revenue has grown by over 27% in the last twelve months as of Q1 2024, showcasing strong business momentum.
Investors interested in exploring further insights on DoorDash can find additional InvestingPro Tips by visiting https://www.investing.com/pro/DASH. Moreover, those looking to deepen their analysis can benefit from a subscription to InvestingPro, and with the use of coupon code PRONEWS24, they can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 9 additional InvestingPro Tips available, investors can gain a comprehensive understanding of DoorDash's investment potential.
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