Uber (UBER) was one of the most widely-anticipated IPOs when it finally went public. Shares currently sit at $36 per share, which is below the closing price on the first day the stock had its IPO. Therefore, the question remains whether Uber stock got ahead of itself, considering the company’s underlying growth.

Still, Uber stock remains a favorite holding for growth investors, both at the retail and institutional level. For example, major investment firms such as Altimeter Capital are owners of Uber stock. However, Uber appears fairly valued. And in a difficult operating environment marked by the coronavirus pandemic and economic downturn, Uber shares may be overvalued right now.

Business Overview

Uber develops and supports technology applications that enable independent providers of ridesharing, meal preparation, and delivery services to transact with riders and eaters worldwide. Its driver partners provide ridesharing through a wide range of vehicles while its restaurant and delivery partners provide meal preparation and delivery services under the Uber Eats brand.

Uber has spent almost a decade in order to build its extensive network and improve its applications. It is currently present in more than 700 cities in 63 countries and aims to offer exceptional returns to its shareholders thanks to a new secular trend, namely the shift of consumers away from car ownership, towards transportation-as-a-service.

Not surprisingly, Uber has performed poorly to begin 2020, as it has suffered from the coronavirus pandemic and the resulting loss in demand for rides. Revenue fell 29% in the most recent quarter, compared to the same quarter last year.

Uber: Growth, But Not At Any Price

There is little questioning Uber’s impressive growth in the past several years. It has grown to take the leadership position in a high-growth industry. Revenue has soared from just under $2 billon in 2015, to over $14 billion last year. Consumers clearly are flocking to the convenience of using an app to get a ride, rather than the old ways of hailing taxis. But Uber continues to generate losses, meaning shareholders are not likely to receive a dividend any time soon.

Of course, to invest in Uber is to assume that this is not a dividend stock. It goes without saying people buy Uber as a growth stock. But investors must ask whether the future growth has already been priced in. Analysts currently expect Uber to generate losses through 2023. Therefore, it appears profitability is still years away for Uber. Revenue will likely continue to grow, but the share price may level off if the company continues to rack up huge losses.

Growth stocks are typically valued on revenue and not earnings (since many do not have positive earnings) but even here, the stock does not look cheap. With 2019 revenue slightly above $14 billion and a current market capitalization above $62 billion, Uber has a trailing price-to-sales ratio above 5.0, which means that the stock does not appear to be undervalued. Therefore, while Uber is attractive for growth, it could be argued that the company’s share price already prices in this growth.

The Bottom Line

Growth investors look for stocks that generate high revenue growth from year to year. While Uber qualifies as such, the company’s growth has slowed down significantly in 2020 due to the coronavirus pandemic. In addition, Uber continues to generate significant losses. With profitability a few years away and shares currently trading at lofty valuation multiples, it appears the stock is overvalued. As a result, investors should wait for a better price before buying Uber stock.