How to Buy DoorDash Stock: Food delivery has always been popular, but the COVID-19 pandemic turned this luxury into a necessity. Consumers who were once accustomed to limited delivery options lost interest in leaving home – and that meant any restaurant that wanted to stay in business had to adapt.
DoorDash (DOOR) is a delivery company modeled after sharing economy businesses like Uber (UBER) and Airbnb (ABNB). When COVID hit, it was in the right place at the right time to scale up and achieve its original mission: to enable every merchant to deliver.
In the two years since COVID-19 upended the world, the US food delivery market more than doubled, and DoorDash (DOOR) commands a healthy share of that market – more than 50 percent. That made it possible for the company to hold an IPO in December 2020, which was far more successful than anyone predicted. In fact, DoorDash stock opened trading at a price that was 80 percent higher than the IPO’s original $102 per share.
In the year following DoorDash stock’s IPO, share prices drifted down, rallied, and then began another decline. There are a variety of issues facing all of the food delivery companies – and the restaurants they serve – calling into question whether the model can ever truly be profitable.
There are also a variety of looming legal issues to contend with. Employment law hasn’t quite caught up with the gig economy, but many states are starting to question the independent contractor model that Uber, DoorDash, and similar services rely on. In some cases, there is a push to treat drivers as employees. If that effort is successful, the financial consequences to businesses using the resource-sharing model will be devastating.
All of these concerns have investors wondering whether today’s share price is an opportunity to buy DoorDash stock at a discount before DoorDash stock goes up or if it is a sign that the stock is a poor choice for long-term growth. Specifically, investors want to know, “What is DoorDash stock’s investment potential?”
Will DoorDash Stock Go Up?
DoorDash was founded in 2013 when four Stanford students began interviewing merchants to identify pain points that might lead to a viable business. They quickly realized that many small companies were losing sales because they didn’t have the infrastructure in place to handle delivery requests. From there, it was a matter of months before the earliest version of DoorDash was up and running.
Though it started as a local delivery service, DoorDash quickly branched into new markets. Within five years, the company had a presence in most US cities, and it more than tripled its year-over-year revenue in 2019.
The rapid growth continued into 2020, with revenue tripling again, and DoorDash expects to see another year of impressive growth when the final figures for 2021 are available. In the first three quarters of 2021 alone, DoorDash brought in twice as much as it did in the previous year.
The trouble is that DoorDash hasn’t yet managed to generate a profit, and the restaurants it serves often break even – or lose money – on DoorDash orders despite the fact that customers pay a premium for delivery.
Depending on a variety of factors, restaurants might pay between 15 percent and 30 percent to DoorDash and its peers in commissions. Considering restaurants’ average profit margins run between 7 and 22 percent, the current model simply isn’t sustainable.
Meanwhile, by the time delivery services like DoorDash account for their expenses, their per-order revenue isn’t quite enough to cover the bills. It’s clear that there is demand for delivery services, but how much are consumers willing to pay for convenience once the threat of COVID has passed?
Among analysts, there is a definite split. Roughly half recommend buying DoorDash stock, while the rest are firmly in the “hold” camp. The average 12-month projected stock price is $235.88, which represents a healthy upside – if the optimists are correct. At this point, when it comes to whether or not to buy DoorDash stock, the risk is high – but so are the potential rewards.
Does DoorDash Stock Fit Into Your Portfolio?
As a food delivery service, DoorDash falls into the consumer discretionary category. Though it is thriving under the complex economic conditions brought about by the pandemic, it is reasonable to assume that under normal circumstances, people will hesitate to pay a 30 – 40 percent premium on restaurant meals during periods when budgets are tight. That means DoorDash isn’t particularly recession-proof.
If you are looking to buy DoorDash stock, consider your current asset mix before you commit. It fits in well if your portfolio is otherwise diversified with consumer staples, healthcare, utility companies, and discount retailers (i.e., recession-proof stocks).
If you are already heavily invested in tech, consumer discretionary, travel, and entertainment, you may wish to reconsider buying DoorDash stock or trade in some of your current holdings for DoorDash shares. Otherwise, your portfolio will be unable to withstand normal market fluctuations, putting you at risk for not having the financial flexibility you need when you need it.
How Much Should You Invest In DoorDash Stock?
As DoorDash expands operations into new categories of delivery and adds international markets, many investors and analysts are convinced that the stock has massive growth potential. The company has positive free cash flow – $358 million for the nine months ending September 30, 2021 – which represents a significant increase over the $193 million DoorDash had in free cash flow for the same period in 2020.
If DoorDash can solve the profitability issue without losing customers – and market share – shareholders may realize significant returns. However, that’s a big “if”, and DoorDash stock remains fairly high risk.
Therefore, you should not invest more than you can afford to lose. If you do buy DoorDash stock, this is one to monitor carefully. If the company doesn’t show consistent progress, it could be a sign that it is time to cut your losses.
How To Buy DoorDash Stock
In terms of how to buy DoorDash stock, the process is simple. You can trade these shares through your existing online brokerage account. If you don’t already have an account set up, choose your preferred firm – for example, Robinhood, E*Trade, or TD Ameritrade – and enter basic identification information.
You can fund your account electronically from your existing bank, and as soon as your cash is available, you are ready to trade.
Most online brokers make it easy to buy stock. Do a quick search by company name or ticker symbol (DASH), then select the type of order you want.
A market order means you are willing to buy at the market price when the trade is processed. A limit order allows you to set a maximum price so that the trade won’t take place if the per-share price goes over your preferred price threshold.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.