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Buying Lyft stock requires making 'too many big assumptions,' firm warns amid IPO hype

Key Points
  • Lyft shares debuted on Friday to much fanfare but slipped below its IPO price in Monday trading.
  • Guggenheim began coverage of Lyft shares with a neutral rating on Monday.
  • "We simply have to look too far out with too many big assumptions in order to make a case for the stock," Guggenheim analysts Jake Fuller and Ali Faghri wrote.
Signage for Lyft is seen displayed at the NASDAQ MarketSite in Times Square in celebration of its initial public offering (IPO) on the NASDAQ Stock Market in New York, U.S., March 29, 2019.
Shannon Stapleton | Reuters

Guggenheim restrained its enthusiasm for shares of Lyft on Monday, beginning coverage of the rideshare company's stock with a neutral rating due to what the firm sees as a hazy outlook.

"We simply have to look too far out with too many big assumptions in order to make a case for the stock," Guggenheim analysts Jake Fuller and Ali Faghri wrote in a note to investors.

Lyft debuted on Friday to much fanfare, with more than 70 million shares exchanged on its first day of public trading. While the stock soared more than 20 percent intraday Friday, hitting a high of $88.60 a share, Lyft shares sold off during the afternoon and closed at a modest 8.7 percent gain. The stock continued to fall on Monday, closing down 11.9 percent at $69.01 a share, below its IPO price of $72 a share.

Fuller and Faghri said Guggenheim does "understand the excitement" surrounding Lyft's IPO, as the company as a large market to grow into and is on the "front lines of a shift" in transportation. But several "key issues" remain for Lyft, the analysts said. Those include whether the company can sustain its revenue growth, build its investments in nascent markets like electric scooters and self-driving, all while driving its total valuation higher.

"Our rating is primarily a function of a lack of visibility on the path to profitability," Fuller and Faghri said. "LYFT did provide healthy margin objectives, but it did not really talk about how it might get there"

Guggenheim does not have a price target on the stock.

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Lyft euphoria hits the market, will the IPO lift stocks to new highs?