What a brutal six months it’s been for Lyft. The stock has dropped 22% and now trades at $13.31, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Given the weaker price action, is this a buying opportunity for LYFT? Find out in our full research report, it’s free.
Why Is Lyft a Good Business?
Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.
1. Active Riders Skyrocket, Fueling Growth Opportunities
As a gig economy marketplace, Lyft generates revenue growth by expanding the number of services on its platform (e.g. rides, deliveries, freelance jobs) and raising the commission fee from each service provided.
Over the last two years, Lyft’s active riders, a key performance metric for the company, increased by 12.2% annually to 29.2 million in the latest quarter. This growth rate is strong for a consumer internet business and indicates people love using its offerings. 
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Lyft’s full-year EPS flipped from negative to positive over the last three years. This is a good sign and shows it’s at an inflection point.
3. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Lyft’s margin expanded by 26.3 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Lyft’s free cash flow margin for the trailing 12 months was 17.7%.
Final Judgment
These are just a few reasons why we think Lyft is a high-quality business. With the recent decline, the stock trades at 7.4× forward EV/EBITDA (or $13.31 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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