Friday, 8 December 2023

Why Lyft Stock Jumped 28% in November

by Earn Media

Shares of Lyft (NASDAQ: LYFT), the No. 2 ride-hailing company in the U.S., were on the move last month. The transportation stock benefited from the Federal Reserve’s decision to hold interest rates steady, and the company also reported solid third-quarter results that showed it was making progress toward profitability. The stock jumped again late in the month, but the reasons for that move were less clear.

According to data from S&P Global Market Intelligence, the stock finished the month up by 28%. Its gains came primarily in two separate rallies — one at the beginning of the month, and one at the end.

Why Lyft Stock Jumped 28% in November

LYFT data by YCharts.

Lyft starts heading north

Since its IPO in 2019, Lyft has been mostly a disaster for investors. The stock is down more than 80% from its $72 IPO price.

However, it was propelled upward by macroeconomic news last month. First, Lyft rose 8.4% on Nov. 2 after the Federal Reserve held its benchmark interest rate steady following its latest meeting — a bullish sign for stocks, especially ones that are sensitive to interest rates like Lyft. And it gained 7.2% the following day as a weak employment report was also interpreted as a good sign for struggling growth stocks like Lyft.

The following week, the stock actually fell 6% after Lyft delivered its third-quarter report. The company’s revenue rose 10% to $1.15 billion, in line with expectations. However, the market seemed to be disappointed that its gross bookings growth of 15% underperformed rival Uber‘s growth of 21%. Lyft’s guidance was also below expectations. Still, the company nearly reported a generally accepted accounting principles (GAAP) profit for the first time with a net loss of $12.1 million ($0.03 per share).

Near the end of the month, the stock soared again on no fundamental news, but it crossed several moving average lines, which some investors see as a bullish signal.

What’s next for Lyft

Lyft stock kept rising at the start of December on more signals that the Federal Reserve is done raising the federal funds rate for this cycle. Lyft is a cyclical business, and it has close to $1 billion in debt on its balance sheet, making it sensitive to interest rates and the strength of the economy. Additionally, its low stock price and GAAP unprofitability make it even more sensitive to interest rates, as growth stock valuations tend to increase as interest rates fall.

Lyft stock could continue to move higher as its profitability has significantly improved from a year ago. Keep an eye on interest rates as well, as a dovish Fed should give more support to the stock.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.