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Now is not the time to hitch a ride with LYFT Stock


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Lyft (NASDAQ:LYFT) the stock has been hit hard by the Covid-19 pandemic but is now trying to stage a recovery. It won’t be easy, however, as Lyft faces not one, but multiple lawsuits for alleged assaults.

This could put negative pressure on LYFT’s stock, much like scrutiny from the Federal Trade Commission or the FTC regarding possible exploitation of gig workers.

If Lyft investors were counting on a dramatic post-pandemic comeback, they are surely disappointed now. In the company’s most recent quarter, Lyft posted a loss in GAAP-measured earnings of $377.2 million, which is significantly worse than the $251.9 million loss in the previous quarter.

It’s even difficult to assess the value of Lyft, as the company has no price-earnings ratio on a 12-month basis. Moreover, other problems loom on the horizon. A government crackdown, combined with a series of lawsuits, will make it terribly difficult to invest in Lyft with confidence.

What’s going on with LYFT Stock?

LYFT stock has been a poor performer in 2022 to say the least. The stock started the year near the $45 level, only to drop to $14 and change recently.

There really isn’t much value here, only persistent price deterioration. Again, Lyft is not a profitable business on a measured GAAP basis. It’s really not too shocking, then, that Bank of America Analyst Michael McGovern slapped Lyft with an “underperforming” rating along with a not particularly ambitious price target of $14.

On top of that, investors in the company now have to worry about a government crackdown on some companies hiring gig workers. The FTC pointed to a “power imbalance” in which some companies control their employees in concert through algorithms.

Apparently, this leaves workers “more exposed to harms from unfair, deceptive and anti-competitive practices and is likely to amplify those harms when they occur.”

Samuel Levine, director of the FTC’s Consumer Protection Bureau, had harsh words for companies that might try to reassign gig workers. “No matter how gig businesses choose to categorize them, gig workers are consumers entitled to protections under the laws we enforce,” Levine said.

The FTC’s crackdown could create lingering problems for Lyft, which relies on drivers who work on demand. The FTC’s scrutiny could potentially lead to fines being imposed on Lyft and/or policies that force Lyft to pay its drivers more.

Legal actions could damage reputation

Along with the government crackdown on companies hiring on-demand workers, there’s another lingering problem for Lyft. A report of TechCrunch provided details of 17 separate lawsuits against Lyft. These lawsuits involve drivers and passengers who claim they were assaulted on Lyft rides. Plus, lawsuit accuses Lyft of ‘failing to protect its users’ TechCrunch reports.

Lyft apparently disputed some of the claims, but the reputational damage has already been done. Only the TechCrunch report alone might be enough to dissuade some people from using Lyft.

It could also prove extremely costly for Lyft. Remember, we’re not talking about just one class action here. Lyft faces 17 separate lawsuits filed in multiple US states. It could take months or even years for these lawsuits to be resolved.

What you can do now

Do you really want to invest in a company that is facing reputational damage and potentially costly lawsuits? This is a question that any potential investor in LYFT shares should consider carefully.

Then you have to worry about the FTC crackdown. Remember that Lyft’s problems are your problems if you choose to invest in the company. Therefore, it’s wise to steer clear if you’re considering buying Lyft stock now.

As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.

InvestorPlace

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
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