JMP Securities has advised investors to capitalize on the recent decline in one of the most popular gig stocks.
DoorDash (NASDAQ:DASH) shares have been moving lower recently. Still, analysts are shrugging off concerns about slowing top-line growth and investments in new verticals.
The financial services firm has maintained that the company is on a promising path towards inclusion in the S&P 500 and anticipates increased share repurchases and therefore offers a strategic opportunity for long-term gains.
According to analysts, DoorDash's free cash flow (FCF) generation has already turned positive and has significant potential for continued growth. "Taking a bigger picture lens, we believe last mile delivery is a massive TAM with multiple adjacencies," said a note released on Thursday.
"DoorDash is investing across multiple fronts today and under-earning as it continues to focus on growth. With commentary that unit economics continues to improve across its business and a best-in-class management team, we view the recent weakness in shares as an opportunity," the note read.
DoorDash shares have fallen 19% since the last earnings report, closing at $103.16, which equates to 17.9x 2025E EBITDA and 14.2x 2026 EBITDA. Analysts reiterated its ‘Market Outperform’ rating and $140 price target, based on a ~25x 2025E EBITDA of $2.3 billion (2.6% of GOV), implying a ~20x 2026 EBITDA multiple.
The premium is justified by DoorDash's leading market share in US restaurant delivery and its potential in new verticals, including grocery, said analysts.
Restaurant demand has remained strong, especially with high-value suburban orders less impacted by low-end consumer weakness. Despite concerns that macroeconomic factors might be slowing DoorDash's gross order value (GOV), analysts noted that US restaurant users grew double digits year-over-year in Q1 2024, with order frequency at an all-time high.
"We believe the adoption of restaurant delivery is still in its early stages," said analysts.
Analysts also pointed out that grocery investments might continue in the second half of 2024 but expects profitability to improve. The company has improved unit economics in its new verticals and grocery sector since Q4 2022.
"We are beyond peak grocery losses," according to analysts, with DoorDash continuing to add new grocery partners, which may pressure take rates in the short term but ultimately drive long-term growth.
Looking ahead, analysts are optimistic about DoorDash's financial outlook. The firm believes that the company's 2025 and 2026 EBITDA estimates are achievable as FCF ramps up significantly.
With an expanding take rate, stabilizing COGS, and reasonable growth expectations for R&D and G&A, analysts project that DoorDash's FCF per share could reach ~$5.60.
"We project 2026 FCF of $2.8 billion, up more than double from the $1.35 billion achieved in 2023," said analysts.