DoorDash has 74% downside potential, 1 analyst says
As many analysts rush to give food delivery IPO DoorDash, Inc. (NYSE: DASH) bullish price targets and bullish criticism, internet-based Citron Research has stymied the tendency to label the company’s stocks as massively overvalued. Citron dubbed DoorDash “the most ridiculous IPO of 2020” and assigned a price target of $ 40, a downside of around 74% at the time.
Citron argues that DoorDash’s colossal $ 50 billion valuation is significantly overinflated, citing “zero differentiation between Uber Eats, Postmates, Caviar, Grubhub, DASH or any local vendor” as an indicator. He also observes the “non-brand loyalty business model”, with customers being exclusively interested in delivery costs.
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Citron points out that DoorDash is valued at a multiple of 19 times sales, while its main competitors are valued much lower. Mid-2020, Grubhub (NYSE: GRUB) was a multiple of 4, while Postmates was acquired for $ 2.65 billion, another multiple of 4, and Uber (NYSE: UBER) is valued at 6 times sales. At a multiple of 4, Citron says, shares of DoorDash would trade at $ 32.
The analyst also notes that the food delivery industry is a handy fruit for government officials “looking to crack down on big tech” and says “the race to the bottom has begun.”
The value of DoorDash is indeed much higher than expected, with the company price of its IPO at $ 102 rather than the $ 75 to $ 85 initially planned per share. Some value stems from its 51% market share, but the IPO almost immediately climbed to over $ 195 per share. While the price has since declined, some outlook always indicate that the stock price is a kind of “bubble”.
As Citron Research’s cautionary note pushed stocks lower yesterday, DoorDash is posting explosive gains again today as Susquehanna Financial Group joins the voice of the bull.
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