One Of Our Top Stock Picks Doubled And Still Has Room To Run

In today’s edition of The Juice, we follow the story of a story stock. 

As we noted last week, one of the biggest mistakes (some) investors have made over the last ten or so years is assessing valuation all wrong on tech stocks, including, the best example, Amazon.com (AMZN):

Do you remember all of the people over the years who constantly warned of a bubble and screamed to not invest in (Amazon.com), because it’s overvalued. To a person, these market savants cited Amazon’s price-to-earnings (p/e) ratio as the metric to end all metrics. 

Back in the day, there were times when AMZN’s p/e ratio (when it started turning a profit) topped 1,000. Values well into the hundreds were routine.

Not to mention, the times when AMZN had NO p/e ratio because it was losing money. 

Amazon commanded such a high p/e ratio and investors continued to run up its stock because the future growth prospects were enormous. 

Jeff Bezos used to say all of the time that Amazon wasn’t worried about being profitable. It was focused on reinvesting back into its business to realize and maximize this massive opportunity.

There’s something similar happening with DoorDash (DASH). The story stock — and, more precisely, the ecosystem stock — The Juice first recommended in November of 2022. So almost two years ago now.  

At the time, we noted a significant decrease in investor search interest in Trackstar, our proprietary sentiment indicator. We took that to mean that the disinterest in DoorDash was overdone and the stock was oversold and set to extend the rally it had only just commenced:

As we noted last week about Facebook and Instagram parent Meta Platforms (META), sometimes a lack of investor interest signals opportunity. There’s nothing better than getting into a stock – especially a beaten-down one – before it regains favor with investors. 

And interest in DoorDash (DASH) fell 35% over the last week, according to Trackstar, knocking it off of the list of the most searched software application stocks. 

Even worse, the stock has cratered roughly 63% year to date, nearly twice as much as Uber’s fall.

Turns out we were right, twice. 

Because, for the record, if you took us up on our Trackstar-inspired recommendation of Meta Platforms (META) around the same time, you’re sitting on approximately 371% worth of upside today. 

When we first mentioned DASH, it traded for around $55. Now, it’s closer to $130. So, a bit more than a double. 

We continued with our bullishness on DASH, noting that it could explode in 2023. We talked about the many partnerships DASH was putting together and how it was becoming a true one-stop across multiple verticals for consumers. 

In January of this year, we touted DASH’s international expansion and entrance into other potentially lucrative revenue lines. 

All of this and we’re still bullish. 

Because, here’s where things stand, as of the company’s recent Q2/2024 earnings report: 

• Total Orders increased 19% Y/Y to 635 million and Marketplace GOV increased 20% Y/Y to $19.7 billion.
• Revenue increased 23% Y/Y to $2.6 billion and Net Revenue Margin increased to 13.3% from 13.0% in Q2 2023.

Losses at the company continue to narrow. 

And, importantly, it continues to strike key partnerships and expand its advertising business. 

Consider these tidbits from DoorDash’s CEO Tony Xu on the earnings conference call: 

For example, obviously, we’ve been very strong in grocery and in convenience. That’s been a big focus for us for three years. And we are excited actually. Actually, just this morning, we announced an update to our partnership with Chase, which now makes us Chase’s exclusive partner in both restaurant delivery and grocery delivery for all of their cardholders.

I mean, if you look at where we started with ads, most of the stack was built for restaurants, and that probably makes sense given our history. But DoorDash is no longer just a one category, one country company. We are five business lines, 30-plus countries.

There’s the Amazon-like growth and evolution. 

But the really exciting part — and what keeps us super bullish — is the fact that DASH’s advertising business is in the early innings. In a nutshell, here’s how it works. 

DASH builds a large consumer presence throughout its platform. With all of these eyeballs, it can command significant ad dollars from large brands. However, to deliver results, it has to be careful to not get too ahead of itself. It’s an aggressive, but patient strategy, as Xu illustrated in an excerpt worth reading because it’s central to the long-term investment case:

I think, we had a lot of attention and excitement from virtually every top CPG advertiser because they saw the largest local commerce platform offering ads for the first time three years ago that had the highest frequency, the highest membership base for local commerce and the highest cross-sell between categories. And so, obviously, their question is like, hey, what are you waiting for … At the same time, we also have to balance the other side, which is an advertising business can only be built off the back of a healthy and robust marketplace business, and it doesn’t really go the other way around. So you kind of need the marketplace business to grow in order for your advertising business to have a long runway for healthy growth. 

The Bottom Line: The possibilities here are endless. If DASH only realizes half of the potential in its advertising business alongside sustained growth in its core business, expect the stock to continue to soar. 

We also have to think that Alphabet (GOOG) and even Uber (UBER) might have DASH on their radar as a potential acquisition. While we don’t think DASH is quite ready to sell, if they do they’ll command a premium and investors will win. 

When a company is building out an ecosystem the way Amazon did and the way DASH and UBER are, you have to give them lots of leeway on conventional valuation metrics. If you don’t, you run the risk of losing sight of the story — or, worse, never understanding it in the first place — and missing out on significant stock market gains.

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