Buying Lyft stock requires making ‘too many big assumptions’

Shannon Stapleton | Reuters

Signage for Lyft is seen displayed at the NASDAQ MarketSite in Times Square in celebration of its initial public offering (IPO) on the NASDAQ Stock Market in New York, U.S., March 29, 2019.

Guggenheim restrained its enthusiasm for shares of Lyft on Monday, beginning coverage of the rideshare company’s stock with a neutral rating due to what the firm sees as a hazy outlook.

“We simply have to look too far out with too many big assumptions in order to make a case for the stock,” Guggenheim analyst Jake Fuller wrote in a note to investors.

Lyft debuted on Friday to much fanfare, with more than 70 million shares exchanged on its first day of public trading. While the stock soared more than 20 percent intraday, Lyft shares sold off throughout Friday afternoon to close at a modest 8.7 percent gain.

Fuller said Guggenheim does “understand the excitement” surrounding Lyft’s IPO, as the company as a large market to grow into and is on the “front lines of a shift” in transportation. But several “key issues” remain for Lyft, the analyst said. Those include whether the company can sustain its revenue growth, build its investments in nascent markets like electric scooters and self-driving, all while driving its total valuation higher.

“Our rating is primarily a function of a lack of visibility on the path to profitability,” Fuller said. “LYFT did provide healthy margin objectives, but it did not really talk about how it might get there”

Lyft shares fell 2.7 percent in premarket trading from Friday’s close of $78.29 a share. Guggenheim does not have a price target on the stock.