Many companies go public before they’re able to fully earn a profit. Selling shares to the general population spreads around the risk, and allows a company to raise capital to fund operations.
Once a company goes public, moving to profitability is key. The past few years saw a surge of early-stage companies going public, but many failed to grow and become profitable. Of those that have moved to profitability, chances are shares can move higher in the years ahead.
One such company becoming profitable this year is Uber (UBER). The ride-share giant reported a record number of drivers this year. And its push into food delivery allowed it to hit a second consecutive quarter of profitability.
That’s helped shares soar by 75 percent so far this year, but there could be more upside ahead thanks to the move to consistent profitability.
Thanks to the improved financials, Uber has gone from 350 times forward earnings in the past year to under 35 times earnings.
Action to take: Investors may like shares here. While already near a 52-week high, they’re poised to continue running higher into early next year. Investors can likely see low-to-mid double-digit gains.
For traders, the January 2024 $55 calls, last going for about $1.25, could see mid-to-high double-digit returns from a year-end rally for Uber shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.