DoorDash (NYSE: DASH), America’s largest third-party food delivery company, went public at $ 102 a share last December. The stock opened at $ 182 on day one, continued to rally, and finally hit a 52-week high of $ 256 in February.

However, those who chased the DoorDash rally have been burned as investors shifted from growth stocks to value stocks in recent months. Concerns about rising bond yields, inflation, and difficult year-over-year comparisons for so-called “pandemic stocks” sparked this sell-off, which took DoorDash stock to $ 160 And wiped out most of his post-IPO gains.

Image source: DoorDash.

But at these levels, investors might wonder if it’s time to buy the stock again. After all, DoorDash remains the market leader in the United States, and there is still a high demand for its services among restaurants and diners. Let’s see if this is still a worthwhile investment.

How did DoorDash win the delivery war?

Two years ago, DoorDash overtook Grubhub as the # 1 food delivery platform in the United States with three main strategies.

First of all, DoorDash was created from the ground up as a logistics company that helped restaurants launch their own delivery services. Grubhub initially listed only restaurants that provided their own delivery services.

Grubhub’s approach limited its growth, so it eventually acquired smaller delivery platforms and developed its own logistics network to keep pace with DoorDash and Uber (NYSE: UBER) Eat. However, Grubhub’s inorganic growth strategy was more expensive, more complicated, and less consistent than DoorDash’s simpler business model.

Second, DoorDash focused on winning customers in cities that Grubhub did not yet dominate. As a result, Grubhub maintained its lead in New York City, but lost other major metropolitan markets to DoorDash.

Third, DoorDash has remained private much longer than Grubhub, which went public in 2014. As a result, DoorDash has continued to attract private equity investments and has not had to worry about its stock price or price. profitability, which allowed it to grow and challenge aggressively. Grubhub with promotions.

How fast is DoorDash growing?

DoorDash controlled 57% of the US food delivery market in May, according to Second Measure. Uber Eats and Postmates, which merged last December, controlled 21%, while Grubhub had a 17% stake.

DoorDash’s revenue jumped 226% to $ 2.89 billion in 2020, accelerating from its 204% growth in 2019, as its total orders more than tripled to $ 816 million throughout. throughout the pandemic. It also generated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 189 million for the full year, compared to a loss of $ 475 million in 2019.

By comparison, Grubhub’s revenue grew only 39% to $ 1.8 billion last year, and its Adjusted EBITDA actually fell 41% to $ 186 million.

DoorDash’s momentum continued into the first quarter of 2021. Its revenue jumped 198% year-on-year to $ 1.1 billion; its total orders still more than tripled; and it posted adjusted EBITDA of $ 43 million compared to a loss of $ 70 million a year ago.

What problems could DoorDash encounter?

DoorDash’s growth rates are astonishing, but he expects its growth to slow after the pandemic ends. Analysts expect its revenue to increase 45% this year and 21% next year.

Based on those estimates, its shares are trading at 13 times this year’s sales. Bulls will say this is a reasonable price / sell ratio compared to many of the foamy hyper-growth stocks on the market.

A Dasher picks up an order from a car.

Image source: DoorDash.

However, DoorDash could face new challenges of Just eat take out (NASDAQ: GRUB), the European food delivery giant that just swallowed up Grubhub for $ 7.3 billion. Just Eat believes that Grubhub will complement its Canadian business and that it may try to increase Grubhub’s market share again with loss strategies.

In other words, a price war could be looming on the horizon. Restaurants might also gain the upper hand in negotiating fees in a post-pandemic world, while diners might be less willing to pay high delivery fees.

DoorDash claims it can expand overseas to continue to grow. It has already entered Canada, Australia and Japan, but it still generated 99.6% of its income in the United States last year. He plans to deliver more products, such as groceries and pet products, but it’s a capital-intensive strategy that could pit him against retail giants like Amazon and Walmart.

DoorDash also faces continued pressure to increase its wages and reclassify its Dasher from independent contractors to employees. If these changes take place, the company’s operating expenses will skyrocket.

All of these challenges could make it more difficult for DoorDash to generate a profit under generally accepted accounting principles (GAAP). Its net loss has grown from $ 668 million in 2019 to $ 461 million in 2020 and year over year, from $ 129 million to $ 110 million in the first quarter of 2021. But it will not become profitable anytime soon.

There are better growth stocks to buy

DoorDash’s long-term outlook is still too bleak for my liking. It went well during the pandemic, but I’m not confident in its ability to expand overseas, become a diverse logistics platform for other products, or overcome labor challenges. imminent work. Its stock looks reasonably priced, but there are plenty of promising growth stocks that offer better stability at lower valuations.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.