Uber Stock Price Forecast August 2021 – Time to Buy UBER?

Uber stock was trading sharply lower in early US price action today, extending its dismal run in the year. What’s the forecast for UBER stock and is it a good buy in August 2021?

Uber stock is now down 22% for the year and is underperforming the markets by a wide margin. The stock was under pressure amid China’s crackdown on Didi, where it holds a significant stake.

After Didi’s listing, many expected Uber to monetize the investment. The company got a stake in the Chinese ride-hailing app after it agreed to sell its business in the company to Didi. Outside the US, Uber hasn’t got the same success as in the US markets. It also had to sell the Indian food delivery business to Zomato amid perennial losses.

Uber stock recent developments

If the troubles in China were not enough, Uber has received another jolt, this time in California. The troubles are not limited to the company and would impact all the companies in the gig economy. A judge in California has invalidated Proposition 22 that had received 58% voter support last year and allowed gig economy companies to classify workers as contractors and not employees.

Alameda County Superior Court Judge Frank Roesch has called the move unconstitutional and said it “limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law”. As expected, gig economy companies have said that they will appeal against the order.

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California ruling

Notably, several jurisdictions including in the UK, have been contemplating classifying gig economy workers as employees and not contractors. While classification as employees would mean more pay and better perks and allowances for gig economy workers, companies in the space have been reluctant to classify them as employees. The entire business model of gig economy companies like Uber would be impacted if they classify the workers as employees.

Gad Allon, a professor at the University of Pennsylvania’s Wharton School of Business, expects the costs for gig economy companies to increase between 10-20% if the ruling is upheld. “Companies had a chance to build a new framework that accounts for worker benefits in their cost structures. This ruling shows they lost that opportunity. They’re not dictating the terms anymore,” said Allon as he termed the business model of gig economy companies unsustainable.

UBER stock forecast

Wall Street analysts seem bullish on Uber stock and it has received 36 buy ratings from the 40 analysts polled by CNN Business. Three analysts rate it as a hold while one analyst has a sell or equivalent rating on the stock. Its median target price of $70 implies a 75.3% upside over current prices. The street high target price of $81 is a 103% premium while the street low target price of $34 is a discount of 15% over current prices.

Earlier this month, Gordon Haskett initiated coverage on Uber with a buy rating calling it a “prolonged” play on the reopening story. “We view Uber as a company that continues to further engrain itself in the everyday lives of consumers, which will lead to share gains across both rides and delivery and in turn upward top- and bottom-line revision over the coming years,” it said in its note.

Analyst action

Last month, MKM Partners also issued a bullish note on Uber and called the company a top pick. “We are incrementally bullish on Uber shares because: (1) Potential catalysts could lead to upward revisions to the Street’s estimates and an improvement in investor sentiment; and (2) We expect an upward re-rating on Uber shares once investors have a direct line-of-sight into an inflection in profitability,” it had said in its note.

Uber stock long term forecast

While regulatory issues over worker classification are a potential risk for Uber, the company’s long-term outlook looks positive. It has been taking steps to turn profitable and has exited several markets as part of that. It also sold off its flying taxi business to Joby Aviation. Joby Aviation went public earlier this year through a SPAC merger. Uber also sold the autonomous driving business to self-driving start-up Aurora. While both these businesses have a positive long-term forecast, Uber made a conscious decision of focusing on profitability and consolidation.

Technical analysis

Uber stock is not looking good on the charts though. It is trading below the 50-day, 100-day, and 200-day SMA. There was a death cross formation in stock after its 50-day SMA plunged below the 200-day SMA. While death cross is a lagging indicator, it signals a long-term bear market. After falling below the 50-day SMA, the stock has made lower lows and lower highs which is again a bearish indicator. That said, after the fall, the stock looks oversold with a 14-day RSI (relative strength index) of 27.6. RSI values below 30 signal oversold positions.

From a valuation perspective, Uber currently trades at an NTM (next-12 months) EV-to-sales multiple of 4.1x which is below the 4.5x that it has averaged since listing. As the company takes measures to address the perennial losses and builds strong franchises in food delivery and ride-hailing in key markets, it could see better days in the long term.

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