The Simple Reason to Avoid DoorDash Stock
The COVID-19 pandemic has been a boon for third-party restaurant delivery companies like DoorDash (NYSE: DASH). Dine-in restrictions have forced many restaurants to turn to delivery services to stay afloat, which has resulted in explosive growth for the industry. DoorDash, which claimed a 50% U.S. market share when it went public last year, saw its revenue more than triple in the final quarter of 2020.
This rapid-fire revenue growth has not led to increased profits for DoorDash, or any profits for that matter. The company posted a net loss of over $300 million in the fourth quarter of 2020 on $970 million in sales.
Big losses are not uncommon for fast-growing companies. When the stock market rewards growth above all else, the tendency will be for companies to spend heavily to acquire new customers as fast as possible without much regard for the bottom line. Once these companies scale to a certain size, the bullish argument often goes, operating leverage will kick in and lead to improved profitability.
Source Fool.com
