Down 10%, This Growth Stock is a Buy Right Now

Do you like bargains? Do you also need growth stocks in your portfolio? For most investors in this volatile market, the answer to both questions is a resounding “yes.” But it’s rare to see a growth stock worth owning that’s actually trading at a bargain price. That’s why any time such stocks go on sale to any meaningful degree, the smart-money move is just diving in at the discount being offered.

Although its 10% tumble from last month’s high is anything but enormous, that’s about as much bargain as you’re going to see right now for buy-worthy Uber Technologies (UBER).

Uber is firing on all cylinders for all the right reasons
Uber is, of course, the United States’ leading ride-hailing name. It’s formidable in other parts of the world as well. The outfit turned $33.6 billion worth of bookings into revenue of $9.2 billion last quarter, up 16% and 14%, respectively. It then turned that revenue into $394 million worth of GAAP net income, or earnings of $0.18 per share.

And that’s no minor detail. Its second-quarter profit was also Uber’s first-ever GAAP profit, proving the business model itself is viable.

Look for more such growth going forward, too. Analysts believe revenue will grow 18% this year, translating into 2023 earnings of $0.34 per share — a huge swing from last year’s per-share loss of $4.65. Another 17% top-line improvement next year is expected to produce profits of $1.06 per share.

Then the party really starts.

How is this company doing so well in this challenging economic environment?

To give credit where it’s due, Uber’s founders and current management team have always had their finger on the pulse of the ride-hailing market … even when people themselves were unsure about getting into a complete stranger’s car. The world can now see and appreciate that this option is a viable alternative to taxis, and often a more convenient (and more affordable) option than owning and/or driving your own car.

The business has still only scratched the surface of its ultimate opportunity, however. A forecast from Acumen Research and Consulting suggests the global ride-hailing market will grow at an annualized pace of 17% through 2030, led by North America’s slice of the industry’s pie, where Uber does a huge chunk of its business.

That being said, Uber Technologies’ edge is its sheer scale and the subsequent profits this scale allows. This fiscal flexibility has in turn allowed Uber to successfully venture into arenas other than moving people around. In fact, nearly half of last quarter’s bookings and one-third of its revenue reflected demand for delivery services, rather than people needing a ride from point A to point B. Indeed, 14% of the company’s second-quarter revenue came from freight-handling services.

Simply put, Uber is making smart use of the driver network and technological infrastructure it’s built from the ground up, leveraging it to handle all sorts of delivery duties.

And the world is certainly still ready for more convenient mobility options of all types and purposes. For instance, Straits Research suggests the world’s complicated “last mile” logistics market is apt to grow at an annualized pace of more than 11% through 2030, as more and more retailers use this shipping option to remain competitive. It’s a market that’s perfectly suited for Uber’s mostly localized, neighborhood drivers.

On balance, more reward than risk
There are risks, to be sure. Chief among them is the ongoing regulatory battle to reclassify Uber’s so-called “gig” workers into full-blown employees. This recategorization of contract workers would raise the company’s operating costs rather dramatically. This headwind has abated somewhat in the United States — at least for the time being — but it’s now blowing briskly in Europe. The issue may never entirely go away.

So far, though, Uber Technologies has successfully navigated the matter while continuing to improve and expand its existing service offerings.

And it’s still doing so. Case(s) in point: Its Uber Eats service recently added office supply retailer Staples as a shopping/delivery option, and Uber is now teaming up with Oracle to better handle on-demand, last-mile deliveries that are quickly becoming the expected norm for customers. Earlier in the month, the company announced it will be the NFL’s official rideshare partner for the next four years, steering more football fans to at least one of its services.

Each such evolution, of course, makes Uber even more marketable.

Bottom line? Uber Technologies has dished out some tremendous growth since launching in 2009. But the ride-hailing and small-scale logistics and delivery markets still have tremendous growth ahead. Uber is growing with them. If you can stomach the volatility along the way, it’s bringing its stock along for the ride.

Analysts think that’s going to be the case anyway. While it’s down a bit from last month’s peak, the analyst crowd still has a consensus price target of $58.38. That’s 30% above the stock’s current price … a stock, by the way, that the vast majority of analysts deem a strong buy.

So, don’t sweat the recent stumble. Instead, use it as an opportunity to get into a new position in Uber stock. Barring an unforeseeable calamity, you’re not likely to buy into it at a much better price than its current one.

— James Brumley

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Source: The Motley Fool