Why Are Lyft (LYFT) Shares Soaring Today

Petr Huřťák /
2024/06/12 10:57 am EDT

What Happened:

Shares of ride sharing service Lyft (NASDAQ: LYFT) jumped 6.7% in the morning session after major indices soared as yields declined after the Bureau of Labour Statistics reported CPI (Consumer Price Index - a gauge of the average price consumers pay for goods and services) for the month of May 2024 came in better than expected at 3.3% year on year (versus analysts’ expectations for 3.4%). 

The data also revealed that inflation was flat (unchanged) month on month. The inflation results benefitted from a 2% decline in the energy index, while shelter inflation remained sticky (up 0.4% m/m and 5.4% y/y). 

Sticky inflation is exactly what has delayed the Fed’s planned rate cuts in 2024, with some market participants likely worried that inflation might stay higher for longer. Today’s report eased those worries a bit. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Is now the time to buy Lyft? Access our full analysis report here, it's free.

What is the market telling us:

Lyft's shares are very volatile and over the last year have had 46 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 6 days ago, when the stock gained 9.3% on the news that the company provided promising financial updates during its 2024 Investor Day session. 1.) Gross Bookings is expected to compound at an annual growth rate of approximately 15% between FY'2024 and FY'2027. 2.) Adjusted EBITDA margin (measured as a percentage of Gross Bookings was pegged at approximately 4% on a full-year basis in 2027.  3.) Free cash flow conversion (measured as a percentage of Adjusted EBITDA) is expected to exceed 90% annually between 2025 and 2027. The projections highlighted a focus on achieving a healthy balance between growth and profitability, which the market is likely to cheer. 

The announcement came on the heels of strong Q1'24 earnings results, as revenue blew past analysts' expectations, and gross bookings and the number of rides conducted outperformed. In addition, the company reaffirmed its Q2 2024 and full-year 2024 guidance provided during the Q1'24 earnings call.

Lyft is up 14.3% since the beginning of the year, but at $15.78 per share it is still trading 22.2% below its 52-week high of $20.28 from March 2024. Investors who bought $1,000 worth of Lyft's shares 5 years ago would now be looking at an investment worth $270.16.

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