Uber Stock Up 3% Today – Time to Buy UBER Stock?

The price of Uber stock is up 3% today in pre-market stock trading action following news that the company completed the acquisition of Transplace – a transportation and logistics management software business.

According to a press release published by the company yesterday, Uber will be paying $2.25 billion in an all-cash transaction that was partially financed by a $550 million investment from multiple institutional players into Uber Freight – the firm’s logistics unit.

The deal is the latest move from the ride-hailing company headed by Dara Khosrowshahi to strengthen Uber Freight in what is currently a challenging environment for transportation businesses around the world.

How can this acquisition affect the performance of Uber stock in the future? In this article, I’ll attempt to provide some plausible answers to this question upon assessing the price action and fundamentals of this California-based ride-hailing business.

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Uber Stock – Technical Analysis

Back in late September when I last wrote about Uber, I highlighted that the company’s technical readings were pointing to a bullish outlook for the stock after the company announced that it was ramping up its guidance for the third quarter of the year.

Uber stock closed at $44.4 per share that day and went on to surge to around $49 per share in the next few days for a 10% short-term gain.

However, shares declined only a few days after when the company reported its financial results for the third quarter of the year as losses expanded way beyond the market’s expectations while news of a lawsuit from the US Justice Department amid allegations that the firm was overcharging disabled passengers weighed on the price action.

From a technical perspective, the market’s reluctance to push the price above the 200-day moving average is probably one of the most important factors weighing on the short-term outlook for Uber stock while shares are also struggling to remain above their short-term moving averages.

Meanwhile, momentum oscillators have turned bearish as the Relative Strength Index (RSI) is standing at 45 – bearish – while the MACD has just moved to negative territory shortly after crossing below the signal line.

Overall, even though today’s pre-market jump seems encouraging, the outlook for Uber stock is bearish unless the price breaks above the 200-day moving average in the following days.

Uber Stock – Fundamental Analysis

Uber Freight has been steadily growing in the past few years while revenues from this unit ended the third quarter of the year at $402 million – accounting for less than 10% of the firm’s top-line results.

Uber did not reveal the financial impact that the acquisition of Transplace will have in its numbers. This probably means that the impact will be negligible. However, the fact that the company has deployed this much money into the Freight unit could probably mean that this is where the management is focusing its efforts at the moment.

By the end of the third quarter of the year, Uber had $6.5 billion in cash and equivalents. As a result of this transaction, those reserves will probably be reduced to around $4.75 billion.

Aside from that, not much can be made out of this acquisition except from the fact that Uber’s management could have something in the works ahead of its February 2022 Investor Day Presentation.

Based on this move, Uber may be aiming to expand the scope and reach of its freight unit to accommodate more complex services into the mix.

At the moment, Uber’s enterprise value stands at $90 billion as per data from Koyfin while the firm is expected to produce a positive EBITDA figure of $1.5 billion next year resulting in an EV/EBITDA multiple of 60.

Companies within Uber’s sector are trading at an average of 30 times their forecasted EBITDA. This indicates that Uber could be overpriced considering the significant struggles that the firm is still experiencing to jump to positive bottom-line profitability.

Therefore, the upside potential for Uber seems rather limited unless the firm manages to improve its earnings-generation capacity in the following quarters to justify its current trading multiples.

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