Although I generally remain bullish on Uber (NYSE:UBER) stock, the company does have meaningful threats in the medium term that are worth watching. Still, I expect the shares to perform quite well over the next two or three years. Therefore, I do recommend that long-term investors who are looking for exposure to the U.S. travel sector buy the shares.
Exposure to Positive Trends in the U.S.
As I noted in a previous column, UBER stock should benefit from strong U.S. economic growth, the country’s healthy labor market, and its vibrant travel sector. These factors likely led the firm to project that its EBITDA would advance by a very impressive “compound annual growth rate of 30% to 40% over the next three years,” as I reported previously.
Moreover, the well-respected consulting firm Deloitte indicated that wealthier Americans’ prosperity could result in strong demand for “higher-end travel products” this year. Among the other factors that could produce a strong year for the sector are “Enthusiasm for in-destination activities, growing interest in more diverse destinations, and the return of baby boomers in greater numbers” to travel, the firm stated.
Finally, hybrid work arrangements, the work-from-home trend, higher corporate spending on travel, and intensified market spending by travel companies could all spur the sector’s growth this year, Deloitte believes. And of course, the sector’s growth is positive for UBER stock, since travelers tend to use the company’s vehicles a great deal.
Reasons to Be Cautious on the Travel Sector
On the other side of the coin, however, the U.S. Travel Association recently reported that the year-over-year growth of air travel in America had slowed markedly to 6% in January, compared with the double-digit-percentage increases that the industry had enjoyed in 2023. Moreover, hotel room demand actually dropped 1% in January versus the same period a year earlier.
And although many firms are still allowing their employees to work from home “at least part of the week,” only 25% of all U.S. employees’ work days were spent at home last year, way down from the 2020 peak of more than 60%. On the other hand, according to USA Today there was little change in the work-from-home dynamic during the course of last year. Still, the contraction of the work-from-home phenomenon is likely to take a toll on travel trends this year.
Also noteworthy is that Europe, a key market for Uber, reported 0% economic growth last quarter.
Two Important Long-Term Positive Catalysts for Uber and a Look at Its Valuation
Last May, Uber announced an alliance with Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) self-driving subsidiary, Waymo. For the most, part, Waymo has been quite successful, and the division recently announced that it was expanding to Los Angeles after successfully providing ridesharing services in Phoenix and San Francisco. Over the longer term, Uber should benefit from the reduced costs that providing ridesharing services through Waymo will produce.
Also importantly, Uber delivered its first annual profit last year, showing that, at least when travel trends are strong, it can finish the year in the black. That bodes well for its long-term outlook.
And while Uber’s forward price-earnings ratio of 37.85 times, based on analysts’ average 2025 earnings per share estimate for the company, is elevated, it’s still attractive, given the company’s strong growth and bright long-term outlook.
In summary, while Uber’s shares could experience bumps along the road due to a slowing of travel trends, its rapid growth and Americans’ propensity for travel should lift the stock meaningfully over the longer term.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
