As a financial writer I’ve learned to love my haters, and as an investor I’ve learned to love hated stocks. If anything fits that description now, it’s Lyft (NASDAQ:LYFT) stock, which is beaten down both in terms of share price and investor sentiment.
Much like its more famous rideshare rival Uber (NYSE:UBER), Lyft is in the crosshairs of analysts as well as traders big and small. Nobody, it seems, likes Lyft at the moment. I’m more than willing to defend the apparently indefensible and I see a bright and expansive future for Lyft and for the rideshare market as a whole.
Recent downward pressures on the LYFT stock price are the result of what’s known as the “sympathy effect.” When a famous stock in an industry tanks, oftentimes owners of similar stocks in the same industry will panic and dump their shares. This is irrational behavior. And, I believe that it’s also a prime buying opportunity when the sympathy effect causes a stock’s price to fall.
In my humble opinion, Lyft ‘s recent slide is a textbook example of the sympathy effect: Investors watched in horror as UBER fell 7.6% in a single trading session, and then freaked out. Next they unloaded their LYFT shares in fear that Lyft would be the next to fall. Reportedly, Uber had announced a hiring freeze and canceled job applicants’ interviews. Granted, that’s not an encouraging sign for Uber, but I don’t believe this is Lyft’s problem.
Besides, Lyft’s business model isn’t exactly the same as Uber’s. In late 2016, Uber ventured into the $726 billion trucking industry with Uber Freight, an app that connects truck drivers with shippers, warehouses and retailers. Uber ramped up their focus on Uber Freight earlier this year with a number of high-profile hires and a sizable capital investment.
Uber’s focus on Freight has disappointed investors as the capital expenditure continues to weigh on the company’s margins. Lyft, in contrast, has a much narrower focus on its bread-and-butter ridesharing app, which remains popular. The Lyft brand is slowly but surely achieving parity with that of Uber in the public consciousness.
Besides the Uber-Lyft sympathy effect, the Lyft stock price has suffered from the company’s announcement that the lock-up period will end sooner than expected. Usually the lock-up period lasts for 180 days after the IPO.
Sometimes investors are fearful that these insiders will unload their shares as soon as the lock-up period ends. And it’s not unusual for them to take profits at that time. Still, this doesn’t always happen and I’ve seen instances in which a stock actually went up after a lock-up period ended. In any case, it’s not terrible news that the end of Lyft’s lock-up period will happen sooner than expected.
I understand that markets hate surprises and that’s what caused the LYFT to decline. However, there’s no fundamental problem with the company or good reason to panic.
Lyft stock bears have emphasized that the share price is below its $72 IPO price. I won’t deny that, but I tend to look at these things differently. As a believer in the rideshare industry and a contrarian, I’m proud to defend Lyft despite the hate. And perhaps, even because of it.
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