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On surface level, the fading of the COVID-19 pandemic should be excellent news for ride-sharing platform Lyft (LYFT). At the onset of the global health crisis, few wanted to share close quarters with complete strangers amid a mysterious virus flying around. However, with people eager to make up for lost time, travel sentiment skyrocketed from 2020’s low point. Still, this dynamic might not be enough to help LYFT stock, which is struggling mightily this year.
Specific to the underlying company, the San Francisco-based ride-sharing outfit faces 17 new lawsuits brought by its app users across the nation. The accusation centers on Lyft failing to protect passengers and drivers from various forms of assault. At a news conference earlier this month, five of the plaintiffs shared their stories.
Aside from the horrible reputational damage that may be inflicted on LYFT stock and the underlying brand, what makes these lawsuits incredibly problematic is that they represent known controversies. In October of last year, the Associated Press reported that Lyft received an increasing number of reports of assaults in recent years.
Per the news agency, the ride-sharing firm received over 1,800 harassment complaints of a prurient nature in 2019 alone. Therefore, the scandal appears endemic, presenting serious concerns for stakeholders of LYFT stock.
As well, these distractions occur on top of economic woes negatively impacting the travel sector. Recently, the Federal Reserve raised the benchmark interest rate by 0.75%, effectively facilitating deflationary forces. Over time, the purchasing power of the dollar may rise, which would then disincentivize spending.
In turn, this dynamic might not be too helpful for LYFT stock – and bearish traders have taken note. The underlying company now incurs the spotlight of unusual options activity.
Pessimists Target LYFT Stock for a ‘Negative’ Trade
Following the conclusion of the Sept. 26 session, LYFT stock found itself down almost 3.4% against the prior session. Shares closed at $13.52 in the open market, though the main action was found in the options arena.
Specifically, bearish traders dove into the $14 puts with an expiration date of Sept. 30, 2022 – this coming Friday. Volume reached 10,638 contracts against an open interest reading of 432. The bid-ask spread as represented by the midpoint price (86 cents) came out to just under 2.33%.
Interestingly, the pessimism toward LYFT stock in the derivatives market doesn’t quite align with the dominant sentiment. Per data from Barchart.com, the put/call open interest ratio for Lyft stands at 0.52. Typically, the delineation point between bullish and bearish sentiment is 0.70 (mathematically, it would be 1:1 but the market tends to have an upward bias).
Therefore, figures lower than 0.70 reflect bullish sentiment, whereas figures higher reflect bearish sentiment. Still, this trajectory for Lyft may pivot in the future.
Slowly but surely, Wall Street analysts are starting to take a pensive approach toward LYFT stock. Three months ago, out of 20 analysts, 12 pegged Lyft as a “strong buy.” The remaining eight rated shares as a “hold.”
Fast forward to the current month, 27 analysts now cover LYFT stock. Interestingly, while the majority either hold a “strong buy” or “moderate buy” rating, one analyst rated LYFT as a “moderate sell.” Considering that analysts usually take great pains to be diplomatic, the sell rating could be a warning sign.
Business Pressures Start to Mount
Between Lyft and rival Uber Technologies (UBER), the former always came across as more conservative. Mainly, Uber focused on expanding its footprint while Lyft mainly concentrated in the U.S. market, desiring established viability before spreading its wings.
The difference can be seen in the retained earnings line item. For Lyft, this metric comes out to a loss of $8.93 billion in the most recent second quarter of 2022. On the other hand, for Uber, the line item comes out to a loss of $32.16 billion (also in Q2 2022).
All things being equal, LYFT stock might seem the sensible investment, particularly with concerns rising about broader economic stability. However, even with this overriding headwind, Uber has a chance to effectively monopolize the ride-sharing industry. Therefore, its heavier retained earnings loss may be the ultimate victory if it can outmuscle Lyft.
Further, the lawsuits indicate that Lyft may be shooting itself in the foot. Therefore, investors should approach LYFT carefully as we head toward the end of the year.
Not Big Enough for the Two of Them
Early in 2022, with government agencies eager to eliminate pandemic-related mitigation measures, the ride-sharing industry finally seemed to catch a break. However, circumstances have turned out unpleasantly. And that’s not to say that Uber is in great shape either. Nevertheless, the larger competitor may be in better shape to weather the storm.
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