Lyft Stock: Buy, Sell, or Hold?

Consider this: If Lyft stock jumped 40% today — in-line with price targets from analysts — then it would still trade at a substantial discount to Uber stock. Therefore, one could make the case that Lyft is worth significantly more today, just based on its trailing financial results. But things get truly interesting for investors when looking ahead to what’s possible in the next few years.

Lyft is looking to do several things over the next few years. But the one I want to mention is digital advertising. It’s only just getting started now, but the company believes this could be a $400 million business in 2027. And this isn’t outrageous, in my opinion. Consider that Uber hit a $1 billion run rate for digital advertising less than two years after launching.

Granted, Uber is much larger than Lyft, so it’s unreasonable to expect Lyft to scale that big, that fast. But I believe that it can indeed scale to $400 million over a three-year period. For perspective, this advertising revenue target works out to about $4 quarterly per active rider — it’s not a guaranteed outcome, but it’s certainly attainable.

The point is that digital advertising could be a huge growth driver for Lyft in the coming years, and this revenue stream is high margin. This could lift Lyft’s free cash flow even higher. And in fact, management is targeting free cash flow of $900 million in 2027, which is 40% higher than its trailing-12-month free cash flow as of Q3.

Compared to Uber, Lyft is significantly undervalued today based on its trailing numbers. But over the next few years, management is eyeing meaningful growth, meaning the stock is even more attractive on a forward basis. Therefore, I believe Lyft stock is a resounding buy today.

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Jon Quast has positions in Lyft. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.

Lyft Stock: Buy, Sell, or Hold? was originally published by The Motley Fool