Follow Up: Why Uber… Lyft and Chewy are Losers

If you are trying to grow your wealth, buying good stocks is only half the battle.

The other half of the fight involves avoiding the losers.

We aim to help differentiate these halves here at The Daily Edge.

This year, I’ve been warning investors about some future losers amongst a certain group of companies — recent venture capital-backed IPOs.

In May, I wrote that recent venture capital-backed IPOs were definitely not where investors should be putting their hard-earned money.

To me, the massive stock market valuations and lack of profits of these companies most certainly did not match up.

The first half of this year saw venture capital firms bring an unprecedented number of companies to the public market… which was also surely a warning sign.

My opinion of stocks like Uber (UBER) and Lyft (LYFT) in May was to stay far away!

But the venture capital-backed IPOs kept coming.

In August, I warned specifically that the recently IPO’d Chewy Inc. (CHWY) had all the makings of another 1999-style Dot.com era bust.

I felt Chewy’s stock was all risk and no reward — clearly another one to avoid.

My ultimate conclusion was that buying most of these recent venture capital-backed IPO stocks was gambling, not investing.

Now, just weeks later, it’s already starting to look like I was right…

Eventually the Stock Market Cares Whether You Make Money

Over the past six weeks, the bottom has fallen out of the stock prices of most of these companies.

Lyft IPO’d at more than $78 in March and now trades for just $40.

Investors who bought in at the point of maximum excitement have already lost almost half their money.

Uber’s stock went as high as $46 after its 2019 IPO and is now down to $30 — a full third of the value has disappeared in recent weeks.

Then there is Chewy…

The profitless online pet store that only a dog should love.

After trading at $37 after its IPO in June, Chewy now sits at just $24 per share. A 35% decline in the share price without even completing a full quarter of business.

IPO Chart

The problem with these stocks is that they came public with massive stock market valuations, but absolutely no profits.

Take Uber for example…

At $46 per share, Uber had nearly a $90 billion valuation.

You have to admit, $90 billion is a pretty big for a company that lost $4 billion over the past two years.

In the company’s IPO disclosure document (otherwise known as an S-1), there was actually an official warning that the Uber business may never become profitable.

Lyft is a similar story.

When it IPO’d near $80 per share, it carried a $23 billion stock market valuation.

At that price, investors were getting a company that expected to lose $1.2 billion on just $3.3 billion in revenue in 2019.

Yikes — talk about burning through cash!

Most frightening to me though was Chewy, the online pet store.

Even the most optimistic analyst covering the stock doesn’t expect Chewy to eke out a profit until 2023 at the earliest… Yet the company came public with a $13.5 billion valuation!

It was a matter of time until the share prices of these companies cracked.

Now they have, and the entire group has been sold off hard.

But There Was at Least One Baby Thrown Out with This Bath Water

Uber, Lyft and Chewy are just three names among a massive number of recent IPOs.

The second quarter of 2019 saw venture capital firms dump a record dollar value of companies into the public markets — and some of them are actually quite good businesses.

But almost all of them, good, bad and ugly have been caught up in the big sell-off.

Earlier this year the market loved all recent venture capital-backed IPOs. Now the market hates them.

In a few instances that is presenting opportunity.

I’ve found one stock in particular that I believe has been unfairly beaten down with this group.

At current prices, I believe this company represents an excellent buying opportunity.

Check back in with me next week and I’ll present it to you.

I’ll give you the name, ticker and why I think this stock is a great buy right now.

And then you can decide if you agree with me.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@StPaulResearch.com

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Jody Chudley

Jody Chudley is a contributing analyst to Lifetime Income Report and Contract Income Alert. Jody is a qualified accountant with a degree in Finance from Brandon University. After spending fifteen years in various finance and planning roles with an international financial institution, Jody set out to manage his portfolio on a full-time basis.

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