DoorDash (DASH) stock climbed 2.8 % this evening. According to our metrics, the company seems overvalued at today's prices. In the below analysis, we will put DoorDash's valuation in the context of its poor growth indicators and mixed market sentiment, which are also strong drivers for share price.
DoorDash, Inc. operates a logistics platform that connects merchants, consumers, and dashers in the United States and internationally. The large-cap Industrials company is based in San Francisco, United States and has 16,800 full time employees.
DASH Has a Higher P/E Ratio Than the Sector Average
Compared to the Industrials sector's average of 22.19, DoorDash has a trailing twelve month price to earnings (P/E) ratio of -35.4 and an expected P/E ratio of -689.9. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-2.73 or forward earnings per share of $-0.14.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since DoorDash's P/E ratio is higher than its sector average of 22.19, we can deduce that the market is overvaluing the company's earnings.
DoorDash Has a Positive Rate of Expected Growth
P/E ratios are limited because they don't tell us how the market is valuing the company's expected earnings growth. One way to solve this problem is to divide the current price to earnings ratio by the company's expected growth rate, which results in the price to eanrings growth, or PEG, ratio. DoorDash has a negative PEG ratio of -1.46, and since the company's earnings per share are negative, we can deduce that the expected growth rate is positive. While a negative PEG ratio is never a good sign, investors may fin solace in the positive growth expectations.
DASH Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since DoorDash's P/B ratio of 5.87 is higher than its sector average of 4.06, such a margin of safety does not exist for the stock.
DASH's Weak Cash Flow Generation Is Troubling
The table below shows that DoorDash is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in DoorDash's case, free cash flow is growing at an average rate of 39.1% with a coefficient of variability of 274.4%. We can also see that cash flows from operations are evolving at a 43.2% rate, versus 48.4%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 1,211,000 | 139,000 | 1,072,000 | 461.26 |
| 2022 | 367,000 | 176,000 | 191,000 | -66.07 |
| 2021 | 692,000 | 129,000 | 563,000 | 285.62 |
| 2020 | 252,000 | 106,000 | 146,000 | 126.79 |
| 2019 | -467,000 | 78,000 | -545,000 | -216.86 |
| 2018 | -159,000 | 13,000 | -172,000 |
DoorDash Is Not a Profitable Business
If you are looking to make DASH a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and DoorDash's management may be able to make the business profitable in the future.
DoorDash's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 8,150,000 | 9,010,000 | -11 | 35.29 |
| 2022 | 6,583,000 | 7,707,000 | -17 | -88.89 |
| 2021 | 4,888,000 | 5,340,000 | -9 | 40.0 |
| 2020 | 2,886,000 | 3,322,000 | -15 | 78.57 |
| 2019 | 885,000 | 1,501,000 | -70 | 2.78 |
| 2018 | 291,000 | 501,000 | -72 |
DoorDash's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 8,150,000 | 9,010,000 | -11 | 35.29 |
| 2022 | 6,583,000 | 7,707,000 | -17 | -88.89 |
| 2021 | 4,888,000 | 5,340,000 | -9 | 40.0 |
| 2020 | 2,886,000 | 3,322,000 | -15 | 78.57 |
| 2019 | 885,000 | 1,501,000 | -70 | 0.0 |
| 2018 | 291,000 | 501,000 | -70 |
DoorDash's cost of revenue is growing at a rate of 61.9% in contrast to None% for operating expenses. Sales revenues, on the other hand, have experienced a 74.3% growth rate. As a result, the average gross margins growth is 27.4 and the average operating margins growth rate is 27.0, with coefficients of variability of 195.7% and 198.1% respectively.
We See Mixed Market Signals Regarding DASH
DoorDash has an average rating of buy and target prices ranging from $130.0 to $51.0. At its current price of $96.58, the company is trading -1.28% away from its target price of $97.83. 4.4% of the company's shares are linked to short positions, and 89.7% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-09-30 | Sc Us (ttgp), Ltd. | 9% | 32,917,775 | $3,179,198,769 |
| 2023-09-30 | Vanguard Group Inc | 7% | 27,043,520 | $2,611,863,211 |
| 2023-09-30 | Morgan Stanley | 7% | 26,883,277 | $2,596,386,941 |
| 2023-09-30 | Capital Research Global Investors | 5% | 20,056,295 | $1,937,037,007 |
| 2023-09-30 | Blackrock Inc. | 4% | 15,224,080 | $1,470,341,674 |
| 2023-09-30 | Baillie Gifford and Company | 3% | 12,002,645 | $1,159,215,476 |
| 2023-09-30 | Galileo (ptc) Ltd | 3% | 11,535,084 | $1,114,058,433 |
| 2023-09-30 | SB Investment Advisers (UK) LTD | 3% | 10,519,582 | $1,015,981,248 |
| 2023-09-30 | Capital World Investors | 3% | 9,335,710 | $901,642,888 |
| 2023-09-30 | Sands Capital Management, LLC | 2% | 8,417,197 | $812,932,901 |
