DoorDash (DASH -0.72%) is the dominant food delivery company in America with a 67% market share. It expanded into other segments like grocery and retail over the past few years, which could lay the groundwork for significant growth over the long term.
DoorDash stock is up 31% in 2024 so far, so it's comfortably beating the S&P 500, which is up 18%. Here are two reasons why I think it's about to go even higher.
1. An expanding financial opportunity
According to Statista, the online food delivery market will generate $1.2 trillion in order volume worldwide this year, with grocery delivery forecast to add another $770 billion. But that pales in comparison to the overall retail industry, which generated $7.2 trillion in sales in the U.S. alone during 2023.
The non-restaurant retail segment has been a key point of focus for DoorDash over the last few years because of the value it presents. In 2023, the company launched the biggest update to its platform since it was founded, which gave retail a dedicated section and allowed users to create a separate shopping cart specifically for non-food products.
More than 100,000 retailers are now on DoorDash, including popular brands like Victoria's Secret, JD Sports, and Camping World. In May, the company also announced a new partnership with Ulta Beauty, America's largest beauty retailer. Ulta offers over 25,000 products from 600 different brands, and DoorDash users in all 50 states can now have them delivered right from their app.
DoorDash generated $73.3 billion in gross order volume (GOV) over the past four quarters, so it has only captured a fraction of its overall opportunity. The company's goal is to increase order frequency, meaning it wants customers to use DoorDash for more of their shopping needs.
In a conference call with investors for the second quarter of 2024 (ended June 30), DoorDash CEO Tony Xu said, "As we add more categories, we see more order frequency growth." It's a sign customers enjoy the DoorDash experience and are willing to increase their spending on the platform when their favorite products become available.
Plus, CFO Ravi Inukonda said newer signups often have a higher order frequency than the older cohorts, which implies having more shopping categories can lead to stickier users. Simply put, growing its product portfolio might be the key to DoorDash capturing more of its multitrillion-dollar market.
Image source: Getty Images.
2. A historically cheap valuation
DoorDash stock might be beating the S&P 500 this year, but it's still trading 46% below its all-time high, which was set during the tech frenzy in 2021. Its valuation was somewhat unrealistic back then, with its price-to-sales (P/S) ratio soaring above 24.
Investors paid a premium for the stock because they assumed the company's lightning-fast revenue growth at the height of the pandemic would continue into the future, but that hasn't happened. DoorDash generated a record $2.6 billion in revenue during the second quarter, which was a 23% increase from the year-ago period. But by comparison, the company's year-over-year revenue grew by 214% in the second quarter of 2020, when pandemic-era social restrictions were imposed.
To be clear, it's unrealistic to expect any company to maintain that pace of growth over the long term. DoorDash's current revenue growth -- while gradually slowing -- is quite strong relative to its competitors. Uber Technologies' UberEats platform grew its revenue by just 8% in its most recent quarter.
The decline in DoorDash stock, combined with the company's steady revenue growth over the last few years, has slashed its P/S ratio to just 5.4. That's close to the cheapest it has been since DoorDash came public in 2021, and it's also a discount to its average P/S ratio of 7.5.
DASH PS Ratio data by YCharts
DoorDash stock would have to rise 38% from where it trades today to move in line with its average P/S ratio. The company's substantial opportunity in the retail segment could help the stock build on its recent momentum, so I think it's likely to head higher over the next year (and beyond).
