Ride-hailing companies continue to remain attractive to growth investors given that people now view these platforms as a convenient alternative to owning automobiles. A research report from Markets and Markets forecasts the global ride-sharing market to expand from $81 billion in 2021 to $186 billion in 2026, which is a growth rate of 16.6% annually.
While most of the ride-hailing companies are grappling with negative margins, the bottom-line continues to improve due to economies of scale, after a pandemic hit year.
In this article, we compare DiDi Global (DIDI), which is China’s ride-hailing giant, with North American heavyweight Lyft (LYFT) to see which is a better stock right now. Lyft went public in 2019 and DiDi Global was listed on the NYSE this year.
Lyft stock is valued at a market cap of $15.69 billion
Shares of Lyft have fallen over 40% since its IPO in early 2019. The stock is down more than 7% year to date as well and the recent pullback can be attributed to its Q2 results. Lyft reported revenue of $765 million with an adjusted loss of $0.76 per share in the June quarter. Wall Street forecasts the company to post revenue of $696 million and loss per share of $0.24 in Q2.
Investors should note that Lyft reported a positive adjusted EBITDA of $23.8 million for the first time ever. This financial milestone was achieved a quarter prior compared to Lyft’s earlier guidance.
After a rough 2020, analysts expect Lyft to increase sales by 35.3% to $3.2 billion in 2021 and by 40% to $4.5 billion in 2022. Its profit margins are also slated to improve from a loss of $2.66 per share in 2020 to earnings of $0.75 per share in 2022. Lyft ended Q2 with an active rider base of 17.5 million, an increase of 3.6 million year over year.
Lyft is valued at a market cap of $15.69 billion which means its trading at a reasonable forward price to 2021 sales multiple of less than 5x.
Didi Global is a high-risk bet
DiDi Global stock is down 48% from record highs as several Chinese stocks have been pummeled in recent trading sessions. DiDi is a market leader in China’s ride-hailing segment. However, the Chinese government suspended new user registrations for the company due to concerns over data privacy and price-fixing. China might also compel DiDi to provide pension benefits to its drivers which will increase operating costs significantly going forward.
Analysts expect DiDi to report sales of $201 billion in 2021 and $250 billion in 2022. Its profits are also forecast to improve from a loss of $0.55 per share to earnings of $0.83 per share in this period.
Given DiDi’s market cap of $34.73 billion, we can see the stock is trading at a forward price to sales multiple of just over 1x which is really cheap.
DiDi seems significantly undervalued with massive upside potential. In fact, the only analyst covering the stock has a 12-month average price target of $12 which indicates an upside potential of 60%. However, the intervention of the Chinese government and other regulatory authorities is likely to impact DiDi’s stock performance making it extremely risky.
Therefore, for investors with lower risk profiles, like myself, Lyft is a better buy. Additionally, the average price target for Lyft is $74.74, which is 66% higher than where the stock is currently trading.
DIDI shares were trading at $7.55 per share on Friday afternoon, up $0.35 (+4.86%). Year-to-date, DIDI has declined -46.61%, versus a 19.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.DiDi Global vs. Lyft: Which Ride-Hailing Stock Is a Better Choice? appeared first on StockNews.com