TD Ameritrade | May 03, 2021 11:10AM ET
The stock market has been doing some soul searching lately, and that’s particularly reflected in the stock prices of ride hailing companies Uber Technologies (NYSE:UBER) and Lyft (NASDAQ:LYFT).
Investors seem to still be grappling with proper valuation between and among stocks that stand to benefit from a reopening economy and those that have been doing well during lockdowns.
The ride hailing companies are in the former category, and a robust U.S. vaccine rollout seems to have investors optimistic about more people wanting to use their services. As fear of COVID subsides, governments have become more lax about social distancing measures and restaurants and bars are able to accommodate more people.
One difficulty the ride-hailing companies have been facing is worry among potential customers about COVID safety. It’s kind of like the middle-seat test for airlines we’ve been talking about. Things will have pretty much gotten back to normal when people are comfortable from a contagion point of view taking a middle seat on an airplane.
It’s a similar situation for UBER and LYFT: Is a plastic shield between passenger and driver sufficient? And what about the heating and air conditioning filtration? And who sat in this seat before me—was the seat properly sanitized? Or does none of that matter because the pace toward herd immunity has rendered the risks ultra-low? The fact that demand is coming back seems to be a big vote of confidence among riders.
With the fundamental picture improving but still a bit uncertain, investors seem a bit unsure of how to price UBER and LYFT, which is the soul searching highlighted above. Both stocks have seen shares chop around a lot lately after a big surge late last year.
FIGURE 1: SURVIVING A (RIDE) HAILSTORM. Few industry segments were as hard-hit by the pandemic as ride-hailing giants Lyft (LYFT—purple line) and Uber (UBER—candlestick). But confidence has been on the comeback—first in share prices and then in passenger traffic. Meanwhile, both companies have been extending their reach beyond their core services. Data sources: NYSE, Nasdaq. Chart source: The thinkorswim® platform . For illustrative purposes only. Past performance does not guarantee future results.
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