Lyft (NASDAQ:) stock is more valuable now that it has posted two full quarters of cash flow profitability. Cash flow from operations (CFFO) as of the third quarter was positive $10 million. This follows up Q2 CFFO of $15.2 million. These cash flow profitable quarters make Lyft stock more attractive to investers.
The cash flow profitability may not be readily apparent to investors. I talked about this last quarter “Lyft Stock is More Profitable Than It Appears.” You have to look carefully at the company’s cash flow statement to determine this.
For example, in Q3, Lyft reported nine months of cash flow from operations of -$59.5 million. But in Q2, the same figure was -$69.5 million. That means that CFFO improved by $10 million during Q3. The same was true as of Q2 compared to Q1.
This can be seen in the table at right using data taken from the company’s . The first table shows the cumulative CFFO figures. Then the second table shows the quarterly changes.
Note also that Lyft is slowly marching towards free cash flow profitability, although for the time being it is still negative.
This is important because it will show that once Lyft is FCF positive, it won’t burn cash on a quarterly basis after all capital expenditures are made.
Lyft Stock Is Still Much Cheaper Than Uber
Comparing the CFFO figures between it and Uber Technologies (NYSE:) shows that Lyft is healthier.
For example, last quarter Uber lost $908 million in CFFO during its Q3. This represents over 30% of its $3.1 billion in quarterly sales. That means that for every dollar of sales, Uber lost over 30% in cash flow.
But Lyft’s $10 million CFFO represents 1% of its $955 million in Q3 sales. That means for every dollar of sales it returned 1% in positive cash flow from operations for shareholders.
As a result, Lyft stock is much cheaper and more attractive than Uber stock. For example, Lyft trades at an attractive EV-to-revenue ratio of just 2.7 times its 2020 estimated sales. But Uber trades at over 3.2 times EV-to-revenue. More importantly, I believe that Lyft’s CFFO profitability could quadruple by 2020, reaching over 4% of sales, or $140 million to $150 million. At that rate, Lyft stock trades at an attractive CFFO yield of 1.5%.
But UBER’s valuation will remain negative, since it is expected to still lose money on a CFFO basis.
The Market Is Starting To Recognize Lyft Stock’s Value
Although Uber stock is trading at its market lows, Lyft stock has started to make forward progress. Lyft stock is one-third the size of Uber in terms of market capitalization at $13 billion. But as its CFFO profitability increases, Lyft stock should continue to gain market value over its competitor.
Investors should watch Lyft’s quarterly cash flow profitability carefully. Once it is clear that the company is no longer burning cash, Lyft stock will likely rise much faster than Uber.
Uber seems to be stuck in non-profitable operations. the market will begin to make a difference between the two stocks as Lyft gains in profitability.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.
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