1 Growth Stock Down 30% to Buy Right Now

Uber's (NYSE: UBER) stock hit an all-time high of $86.34 on Oct. 11. That marked a 92% gain from its IPO price of $45. But since then, its stock has pulled back about 30% amid concerns about its cautious near-term guidance and a Federal Trade Commission (FTC) probe of its Uber One subscription service. The Federal Reserve's warning of slower rate cuts in 2025 exacerbated that selling pressure. However, I believe that pullback might represent a golden buying opportunity for long-term investors.

Why is Uber a sound long-term investment?

Uber owns one of the world's largest ride-hailing and food delivery platforms. Its total number of monthly active platform customers (MAPCs) grew from 91 million at the end of 2018 to 161 million at the end of the third quarter of 2024.

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Image source: Uber.

From 2018 to 2023, Uber grew its gross bookings at a compound annual growth rate (CAGR) of 23%, as its total revenue increased at a CAGR of 27%. It achieved that robust expansion even as the pandemic temporarily throttled its growth in 2020. It recovered quickly from that downturn and continued to grow over the following four years.

Data source: Uber Technologies. YOY = Year over year.

Uber's scale made its brand synonymous with ride-hailing services in the U.S. and other major markets, and it stayed far ahead of its smaller competitors, including Lyft (NASDAQ: LYFT). It also weathered the regulatory challenges and demands for higher wages by tweaking its services and compensation in certain regions.

A lot of Uber's recent growth was driven by Uber One, its subscription-based service which locked in over 25 million members at end of the third quarter of 2024; its Uber Teens platform, which lets parents authorize rides and deliveries for their teenage children, and the expansion of its enterprise and healthcare delivery services. As a result, its take rate, the percentage of each booking it retains as revenue, consistently increased as its pricing power improved.

For 2024, Uber expects its gross bookings to grow 17%-18%. Analysts expect its total revenue to rise 17% this year and 16% to $50.6 billion in 2025. With an enterprise value of $131.5 billion, Uber's stock looks cheap at just 2.6 times next year's sales. Lyft, which has an enterprise value of $5.0 billion, trades at less than one times next year's sales -- but it might deserve that discount because it faces tougher near-term challenges than Uber.

On the bottom line, Uber turned profitable on the basis of generally accepted accounting principles (GAAP) in 2023. Its profit soared after it divested several of its unprofitable non-core businesses, downsized its freight and recruitment divisions, executed several rounds of layoffs, and streamlined its spending. Lyft isn't expected to turn profitable on a GAAP basis until 2025.

Analysts expect Uber's GAAP EPS to grow 117% in 2024 and 22% in 2025. At $61 a share, its stock still looks attractively valued at 26 times next year's earnings. At $14, Lyft trades at a whopping 117 times its projected EPS for 2025.

But what about its near-term challenges?

Uber's valuations are being squeezed by two headwinds: expectations for stickier inflation and slower rate cuts, and the FTC probe of Uber One. Uber should still flourish in a messy macro environment, as it did throughout 2022 and 2023, while the FTC probe only targets Uber One's enrollment and cancellation policies instead of the entire service.

Simply put, Uber is a high-growth company with a wide moat and attractive valuations. Investors who accumulate the stock after its recent pullback could be well rewarded over the next few years as it continues to expand its ecosystem.

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*Stock Advisor returns as of December 23, 2024

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.