Shares of Uber ( UBER ) have had a rough ride in 2024, lagging the broader market With gains of only 12% over the past 12 months. However, my The bullish outlook remains intactTaking into account that the recent weakness in performance does not reflect any weakness in the company’s business fundamentals. The company achieved strong revenue and earnings growth while generating impressive cash flow. The main factor influencing investor sentiment appears to be the fear that robots may disrupt the ride-sharing industry in the coming years.
Although this is a legitimate concern, it is arguably still a remote risk. Uber has the ability to adapt to emerging technologies, supported by its flexibility to make new investments, diversify its business, and maintain a financially viable ecosystem within the broader mobility industry.
In this article, I’ll share some reasons why I think Uber stock is worth considering as a buy in 2025 and why the market seems to be ignoring it.
First off, one of the first reasons I’m bullish on Uber lies in the value proposition of its ride-sharing and food delivery businesses. Look at Uber’s top line has evolved over the past few years It shows that the company’s revenues amounted to approximately $42 billion during the past twelve months, while in 2019 this number reached $13 billion.
Having quadrupled its revenues over the past five years, I would not be surprised if this growth trend continues, albeit not as strongly, but with a certain force. More and more people have realized the convenience of both ride sharing and food delivery. A possible reason for this trend may also be related to the increasing costs of owning a car in many parts of the world, which favors the use of ride-sharing, especially in large cities.
As a result, analysts estimate that Uber’s top line could grow by 17.3% in 2024, followed by growth of 15.7% and 15.6% in 2025 and 2026, respectively. Furthermore, as Uber prepares to report its second straight year of profitability, forecasts are that the compound annual growth rate of earnings per share over the next three to five years will be an impressive 41.2%. So, given that Uber currently trades at a forward P/E ratio of 22.5x, if long-term CAGR estimates prove accurate or close to it, Uber’s PEG ratio is 0.55, which looks very cheap.
Another piece of evidence related to my positive outlook for Uber stock is that the company has been able to expand its profit margins well in recent years as it has benefited from economies of scale. Currently, operating margins of 6.4% are well above the negative 75% seen in 2020.
Much of this reversal in operating margins over the past few years is related to Uber’s asset-light business model, where drivers use their own cars (which ultimately end up becoming assets for Uber). Hence, the company is able to expand its operations without a proportionate increase in capital expenditure. This approach allowed Uber to generate $1.7 billion in free cash flow in the third quarter of 2024, up 133% from the same period last year.
The company’s balance sheet isn’t flawless, though, as the company has $10.9 billion in long-term debt.It has about $9 billion in cash, cash equivalents and short-term investments. This gives the company plenty of capital to fund growth initiatives. It also means that cash and investments will likely not be a constraint for Uber, and the company can use some of its increased cash flow to gradually pay down long-term debt, reduce interest expenses, and boost profitability.
The third point where I see Uber as a great buying opportunity throughout 2025 is related to the bearish momentum around its stock, which remains overshadowed by Tesla ( TSLA ) Robotaxi concerns, where I see a certain tone of exaggeration. As shown in the chart belowThroughout 2024 – especially in the last quarter – there was a lot of hype around Tesla’s stock announcement, especially with the upcoming robotaxi project scheduled for 2025. This created a lot of negative sentiment towards Uber’s business model.
In theory, the concerns are not unreasonable. Tesla CEO Elon Musk said over the past year that the Robotaxi service model would be a hybrid between Airbnb (ABNB) and Uber, where Tesla would own and manage a fleet of cars and sell them to individuals who want to own their own robotaxis. . However, according to the four-star Wedbush analyst Dan IvesHowever, the reality of Robotaxi implementation is still elusive. According to Comments from analysts earlier this year“Our view is that while this is an exciting announcement about robotaxis, we don’t expect full autonomy (no steering wheel models) until 2030.”
Another point in Uber’s favor is how diversified its business is beyond just ride-sharing. The company has built a highly profitable ecosystem where food delivery, logistics and transportation play key roles. In the third quarter, delivery alone represented 30% of Uber’s revenue, while shipping represented 11%. Uber’s management team appears well-prepared to adapt to disruptive changes in the ride-sharing industry. In fact, CEO Dara Khosrowshahi believes Tesla’s robotaxi project will rely on the resources Uber already has in order to be financially viable.
Given what Wall Street analysts are saying about Uber stock, the overall mood is very optimistic. Out of 35 experts, 33 are in favor of buying, while only two remain neutral. In addition, Average price target is $93.35 It indicates that the stock is significantly undervalued, indicating an impressive upside potential of 44.5% from its current price.
As highlighted throughout the article, there are many reasons to be optimistic about Uber heading into 2025. The company’s fundamentals are the strongest ever, growth is accelerating, and the future outlook is exceptionally bright. I see the stock as a prime example of “growth at a reasonable price,” especially since concerns about the Robotaxi project appear to be largely overblown and have already been factored into the stock’s valuation.
For these reasons, I maintain my confident Buy rating on UBER.
