DoorDash Continues its Downwards Swing

Internet Content & Information company DoorDash has fallen to $42.79 this morning and marked a -5.4% change compared to the S&P 500. DASH is -59.56% below its average analyst target price of $105.82, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, DoorDash has underperfomed the S&P 500 by -61.3%, moving -79.1%.

DoorDash, Inc. operates a logistics platform that connects merchants, consumers, and dashers in the United States and internationally. The company is in the communication services sector, which includes primarily companies with a cyclical profile whose share price is correlated with macro economic cycles. The exception is large telecom companies, which are more defensive in nature since their share prices have a looser correlation with recessions.

DoorDash does not publish either its forward or trailing P/E ratios because their values are negative -- meaning that each share of stock represents a net earnings loss. But we can calculate these P/E ratios anyways using the stocks forward and trailing (Eps) values of $-1.65 and $-1.53. We can see that DASH has a forward P/E ratio of -25.9 and a trailing P/E ratio of -27.9. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the communication services sector has an average P/E ratio of 18.65, and the average for the S&P 500 is 15.97.

To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, DoorDash's operating margins have averaged -42.7% and displayed a mean growth rate of 37.3%. These numbers show that the company may not be on the best track.

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in DoorDash's free cash flow, which was $563,000,000.00 as of its most recent annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In DASH's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $-2,000,000.00 and they've been growing at an average rate of 65.2%.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Doordash's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2.3, but is still below the average P/B ratio of the Communication Services sector, which stood at 2.62 as of the third quarter of 2022.

Since it has a negative P/E ratio, a lower P/B ratio than the sector average, and an unconvincing cash flow history with an upwards trend, DoorDash is likely overvalued at today's prices. The company has poor growth indicators because of no published PEG ratio and negative operating margins with high variability that are increasing. We hope you enjoyed this overview of DASH's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

Thanks for reading! Don't forget to subscribe to our free newsletter!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

IN FOCUS