Despite being a household name and an everyday staple for millions of consumers, DoorDash (NASDAQ:DASH) has seen its stock decline by over 35 percent since October. While DoorDash still has considerable amounts of forward growth priced in, this selloff could have left the stock significantly undervalued. Is DoorDash stock worth owning now, or will DASH shares continue to slide?
DoorDash Expanding Into Grocery
One of the largest growth catalysts ahead for DoorDash could be its ongoing expansion in grocery and retail delivery. DoorDash has already successfully gotten about 30 percent of its customers to order items outside of the restaurant category, a number it hopes to continue expanding. It has also partnered with about 35 grocery chains, including Kroger, to support its fast-growing grocery delivery business.
This move could prove to be an extremely valuable complement to DoorDash’s successful restaurant delivery business. The global grocery delivery market is expected to maintain a compounded annual growth rate of about 20 percent through the next several years, eventually reaching an estimated $2 trillion by 2032. In such a large and fast-growing market, carving out a respectable market share could help DoorDash continue its expansion well into the next decade.
DoorDash’s efforts in the area of grocery delivery are singularly ambitious. By working with multiple grocers and giving customers a large range of choices, the business hopes to compete with the likes of Amazon. 2026 will almost certainly be a telling year for these efforts, as management has said that it expects the retail and grocery delivery business to become profitable by the end of the year. Given the degree to which consumer behavior is shifting toward online ordering, DoorDash could enjoy many years of earnings growth from this business segment after it becomes profitable.
How Is DoorDash Growing Revenues?
While grocery and retail could prove to be an exciting new growth opportunity for DoorDash in the years to come, there’s also quite a lot to like about the business at the moment. In Q4, DoorDash reported a 32 percent increase in its total number of orders compared to the year-ago period, resulting in a 38 percent increase in quarterly revenue to $4.0 billion. DoorDash also reported record numbers of new signups for its DashPass subscription.
GAAP net income saw even stronger growth, rising 51 percent to $213 million. Although DoorDash is still only modestly profitable with a trailing 12-month net margin of 6.8 percent and earnings of $2.13 per share over the same period, it has successfully delivered 12 quarters of consecutive earnings growth.
Despite strong growth, there could be at least a few dimmer areas ahead for DoorDash. For example, management expects positive growth in the US restaurant category this year, but at a slower pace than what DoorDash has achieved during the last three years. This slower growth, however, could be at least partially offset by the grocery and delivery category achieving positive economics later this year. The Q4 earnings report also fell short of analyst expectations, triggering an initial selloff of over 10 percent. This drop, though, was largely reversed in a subsequent rally.
Could DoorDash Be Significantly Undervalued?
With the stock trading at 5.7 times sales, 82.9 times earnings and 42.5 times operating cash flow, it may seem strange to discuss DASH as a deeply undervalued business. Analysts, however, project very large amounts of upside in the stock. With shares currently trading at $176.29, analyst price forecasts predict targets of anywhere from a low of $200 to a high of $340. Under even the most bearish of these forecasts, DASH would gain a further 13.4 percent, while the highest target would see the stock almost double. The consensus price target is currently $262.50, implying an upside of almost 50 percent.
To understand why a stock that already has a fairly high valuation is still believed to have so much potential for upside, it’s useful to consider the earnings growth that DoorDash is expected to deliver in the coming years. DoorDash is expected to see earnings growth of about 30 percent annually through the next few years, resulting in projected net income of over $3 billion by 2028. Considering that strong growth could continue well beyond 2028, DASH stock could be undervalued at today’s prices. It’s important to keep in mind, however, that the stock could face substantial downward volatility if the business can’t meet these lofty growth expectations.
Is DoorDash Worth Owning?
DoorDash’s positives could handily outweigh its negatives at the moment. In addition to driving strong growth from its restaurant delivery business and having large opportunities in grocery and retail delivery, DoorDash also has a fairly strong moat around its business. DoorDash holds about 56 percent of the US food delivery market, more than double the second-placed Uber Eats. In the US alone, DoorDash handles an estimated average of over 3 million deliveries every day. With such an entrenched market share and consumers continuing to shift toward online ordering and delivery, DoorDash is likely in a strong position to benefit from fundamental changes in consumer behavior.
The view that DoorDash can outperform its high price tag and a potentially slower period of restaurant delivery growth ahead also seems to be common among analysts, who remain generally bullish despite the miss on Q4 earnings and revenue. Of the 37 analysts covering DASH, 27 rate it as a buy and the remaining 10 rate it as a hold.
Overall, DoorDash stock is likely a bit of a high-risk, high-reward investment at the moment. If the business can capitalize on the opportunities of grocery and retail delivery while sustaining the high growth rates expected from it, DASH could prove to have substantial upside and a path to sustained returns over several years. As the stock’s slide has shown, however, even very high rates of revenue and earnings growth can result in a great deal of downward pressure when they come in under what’s expected. For investors who are comfortable with the risks, though, DASH could still be an attractive buy for the long run.
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.