DoorDash Soars After S&P 500 Inclusion: Future Prospects

DoorDash's recent entry into the S&P 500 marks a significant milestone, showcasing a 295% ROI since January. The stock is a buy, with an 18% upside projected as demand from index fund managers increases. Investors should consider implications for profitability and valuation metrics moving forward.

Date: 28-03-2025

AI Rating: 7

Stock Market Performance
DoorDash's addition to the S&P 500 on March 24, following a remarkable 295% increase in stock price this year, is a strong positive signal for investors. With a consensus 'buy' rating from Wall Street analysts, the outlook appears optimistic, especially given the median price target of $226, suggesting an 18% upside from its current price of $191.

Earnings Growth
DoorDash has experienced accelerating growth, exhibiting a revenue increase of 25% in the last quarter, reaching $2.9 billion. The rise in gross order value and the total orders indicates a positive trend in consumer demand, which aligns with the company's position as a market leader in U.S. restaurant delivery, holding a 67% market share. This growth momentum could lead to further improvements in profit margins and earnings potential in the short-to-medium term.

Valuation Concerns
Despite promising growth, it is crucial to note that DoorDash's current price-to-sales (P/S) ratio of 7.8 is above its one-year average of 6.1, and the price-to-free cash flow (P/FCF) ratio of 46.3 also exceeds its historical average of 35.8. As such, while the growth prospects are bright, the elevated valuations may raise concerns among value-focused investors. However, if DoorDash sustains its growth trajectory in the upcoming quarters, current valuation multiples could be reconsidered favorably.

Market Sentiment
The historical data shows that stocks tend to perform well after being added to the S&P 500, with an average return of 12% over the following year for 177 companies added to the index in the last decade. This trend, combined with increased visibility and demand from institutional investors, can create a favorable short-term environment for DoorDash's stock.

Overall, DoorDash appears well-positioned for growth, but investors should be cautious of valuation metrics. Long-term potential remains, particularly for those with a horizon of three years or more. The stock's performance should be monitored closely as the company continues to refine its business model and expand its offerings.

Stocks: DASH