Looking for growth? Do you also like discounts? It's rare to see a stock that offers meaningful amounts of both. But, it does happen every now and then.
Uber Technologies (NYSE: UBER) is one such name right now. Here's a closer look at why you might want to act while you can still step in at a bargain price.
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Uber has lived up to expectations
It wasn't too long ago that the idea of random people using their own vehicles to ferry complete strangers around was unthinkable to the point of being laughable.
What a difference 15 years makes. Since its inception in 2009, Uber's become a $150 billion company doing on the order of $40 billion worth of business per year. In the third quarter of 2023, it handled nearly 2.9 billion rides, while doing nearly as much delivery and freight business as personal mobility service. Its top line improved 20% year over year (up 22% on a constant-currency basis).
Perhaps most compelling, however, Uber is profitable, and increasingly so. The third quarter's operating income of just over $1 billion is a marked improvement on the year-earlier comparison of just under $400 million. And yes, Uber is profitable on a net/GAAP basis too. It's cash flow-positive as well. That's not something many people saw coming 15 years ago, nor is it something that can be said of many companies of its type and age.
UBER Revenue (Quarterly) data by YCharts.
More of the same is in the cards, too, in light of how Uber Technologies itself has arguably reshaped personal transportation.
A true story stock that isn't done yet
The term "game-changing" is admittedly overused when describing many young companies' potential. Uber has legitimately earned the accolade, however.
Think about it. The ride-hailing industry simply didn't exist a couple decades back. Such work was typically handled by taxis. Culture evolved though (with some help from technology). The traditional taxi business didn't adapt. Uber founders Travis Kalanick and Garrett Camp saw the opportunity to fill this gap and acted. While it might overstate matters to suggest the company singlehandedly created the ride-hailing industry, Bloomberg's estimate that Uber controls 76% of the U.S. ride-hailing market says the company gets much of the credit. It's doing pretty well in overseas markets where it operates, too.
More important to interested investors, the rise of ride-hailing is allowing people to rethink car ownership or even attaining a driver's license, accelerating the industry's growth.
Car ownership within the United States has been waning since before the COVID-19 pandemic, to be clear, but the trend appears to have been accelerated by the coronavirus contagion. Car-sharing network Zipcar reports that nearly one in five adults living in the U.S. now say they're very likely to give up outright ownership of a vehicle before the end of this decade.
And given the demographics behind the data, that figure is likely to rise. Nearly half of the Gen Z crowd and more than half of millennials are considering a car-free existence. As they age, they'll replace and displace the cohorts that are more likely to own vehicles.
Simultaneously (but not surprisingly), young drivers are less likely to hold a driver's license than they've been in decades. Less than 40% of teenagers are now licensed drivers, according to numbers from the Federal Highway Administration, down from roughly two-thirds of this crowd 30 years ago. Why? They just don't see much reason or need. They've got transportation options that didn't exist then.
To this end, Straits Research expects the global ride-sharing industry to grow at an annualized pace of 21% between now and 2032. Dominant Uber should be able to capture at least its fair share of this growth.
Act on the modest discount while you still can
Uber stock's 17% pullback from its October peak admittedly isn't an enormous discount. You can find bigger, more compelling setbacks from other growth stocks.
You'll find few -- if any -- pullbacks of this size from growth stocks of this caliber, though.
See, this business is very real, and Uber Technologies is now consistently profitable. The ride-hailing industry is only going to get bigger as time marches on, too, as the need for driver's licenses and interest in car ownership not only continues to decline, but accelerates its contraction. Prepared food delivery and even same-day pickups of online shopping orders aren't far behind either, en route to becoming absolutely normal.
Uber is a must-have growth pick if for no other reason than it's the leading name of the mobility market, and quickly becoming a dominant player in the delivery business. And no, robotaxis and autonomous-driving tech aren't quite the threat to Uber as many presume it might be.
This might help drive the point home: While most investors may have been rattled regarding Uber since October, the analyst community isn't. The vast majority of analysts still rate Uber stock as a strong buy, and maintain a consensus price target of just under $90 per share. That's more than 30% above the stock's present price, which isn't a bad way to start out a new position.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. 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.
