Is Uber Stock a Buy on the Dip?

Shares of Uber Technologies (NYSE:UBER) have been fading fast in the last few months. Now trading close to $60 per share, the stock had been much higher as recently as mid-October.

What’s driving Uber shares down, and could UBER be a good stock to buy on the dip?

How Far Is Uber Down and Why?

For the year, Uber shares are still trading essentially flat. In the last three months, however, Uber has slumped off by about 20%. Interestingly, Uber reached its record high just before this drop began. On October 11th, Uber closed at its highest-ever price of $86.34 per share.

A few different factors have contributed to this selloff. In October, Uber share began to slide after quarterly results showed a significant slowdown in gross bookings growth. Behind this slowdown was likely the ongoing increase in the cost of living that has stretched consumer budgets nationwide, forcing many to opt for less expensive transportation. This trend may continue into 2025, as recent data suggest that inflation still isn’t fully tamed.

Uber’s stock was also impacted by Tesla’s announcement of its Cybercab, a fully autonomous taxi that Tesla could use to build its own taxi service to compete with the likes of Uber and Lyft. Although Tesla admits the Cybercab may not be in full production until 2026 or 2027, the emergence of another large competitor could challenge Uber’s market position and reduce the size of its moat.

A final driver of Uber’s selloff may well have been the fact that the stock was previously trading at a high valuation that made it vulnerable to downturns. At the end of September, before the post-earnings selling began, Uber traded at over 37x its trailing 12-month earnings.

The ratio climbed even higher in the weeks that followed as Uber moved toward its all-time high in early October. Today, that multiple has fallen to around 30. While the market is pricing in slower growth and more competition, it may also have corrected an overly optimistic valuation of Uber in the process.

Can Uber Recover?

The most obvious case to be made for an Uber recovery is the company’s competitive advantage in the ridesharing space. Despite competition from Lyft, Uber still accounts for over three-quarters of the ridesharing market. About 25 percent of Americans are estimated to use Uber on at least a monthly basis, giving the company an entrenched position with a recurring customer base.

Here, it’s also worth addressing the potential competition from Tesla that’s currently getting priced into Uber’s shares. Although Tesla’s Cybercab could change the taxi and ridesharing industries, it’s still unproven.

Tesla has a long history of setting high expectations on tight deadlines and then failing to deliver. As early as 2016, Elon Musk was promising that the ability to call a Tesla car from across the country and have it drive autonomously to the caller’s location would be developed within two years.

Tesla’s autopilot feature has also suffered a number of notable setbacks. So, while the Cybercab could be a problem for Uber in the long run, it may not be wise to take Tesla’s timeline for the creation of a robotic taxi service at face value.

Uber is also working on its own answer to the problem of autonomous driving that could keep it out ahead of Tesla in the AV arms race. The company has partnered with Waymo, an autonomous vehicle startup. According to Uber, users will be able to hail a Waymo AV through the Uber app in select test markets beginning in early 2025.

When it comes to the macroeconomic problem of inflation, Uber is just one of many businesses that are starting to see consumers pull back. This problem may be fairly persistent, as higher-than-desired inflation rates could continue into 2025. Fortunately for Uber, the company turned the corner on profitability late last year and has seen its net incomes move generally upward since then. This suggests that Uber can succeed in a higher-inflation environment, though there’s little doubt that consumers cutting back is putting downward pressure on its growth.

So, Is Uber a Buy on the Dip?

While concerns around new competition and slower growth are very real, Uber seems to be in a good position to mount a long-term recovery. The stock is currently priced at just 0.8x expected earnings growth, a metric that could indicate undervaluation.

Given that analysts expect Uber’s earnings per share to grow at a compounded rate of over 40% in the coming 3-5 years, there still seems to be enough of a runway for Uber to keep driving share prices higher.

It’s also worth noting that Uber’s slower bookings growth took over the headlines in spite of Q3 still being a fairly solid quarter for the company. Bookings still rose by 16%, while revenues climbed by 20%. In Q4, the company expects bookings to rise by a roughly similar amount.

Right now, Uber looks like a company with solid long-term prospects that is experiencing elevated short-term volatility. The possibility of competition from Tesla likely won’t keep share prices depressed too much unless the rival company makes significant progress toward creating a fleet of robotaxis that could grab market share from Uber.

Flagging growth due to weaker consumer spending is a more concrete problem that will likely continue to weigh on stock prices. However, Uber seems to have both the competitive edge and the financial footing to weather tough times and still come out at the head of the rideshare market.

A final piece of supporting evidence for the possibility of an Uber recovery is that neither the latest earnings report nor the reports of Tesla’s potential competition caused analysts to significantly change their forecasts for Uber. Right now, Uber has 32 buy ratings, 6 hold ratings and no sell ratings.

Three months ago, the respective numbers were 31, 4 and 0. Wall Street is still firmly betting on Uber’s long-term advantages, and right now it looks like Uber could be a solid buy on the dip for investors who are willing to ride out news-driven volatility.

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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.