Serve Robotics Inc. (NASDAQ: SERV) has had a terrific week for its investors as its stock opened higher on Monday than it had been on Friday, which was even better than what the market had predicted. But is this all hype, or is Serve Robotics a worthwhile investment?
Let’s take a closer look at what’s behind that momentum, how the company’s future prospects shape up, and what some of the risks are that investors should take into consideration.
What’s Fueling the Growth?
Serve Robotics’ stock price has more than doubled in the past three months, leaps and bounds over similar companies in its industry. This strong showing can be attributed to several important factors:
• Growth of its robot fleet – Serve kicked off expansion of the third-generation delivery robots with 250 robots in Q1 and entered the new markets of Miami and Dallas. It now reaches more than 320,000 households and has relationships with over 1,500 merchants.
• Impressive revenue growth – Q1 deliveries drove $440k in revenue (up 150% from last quarter), reflective of actual market demand for autonomous last-mile delivery.
• Strong cash reserves – Having conducted a $91 million capital raise and $198 million in cash as at 30 September 2019, Serve has sufficient runway to implement its growth agenda.
What Are Analysts Saying?
The analyst community continues to be overwhelmingly bullish on SERV stock. The consensus, over multiple firms, is squarely in favor of a strong buy, with price target estimates spanning from $16 to as high as $23. The average target implies ~71% upside potential from current levels.
That optimism is tied to the company’s aim to own the space in autonomous delivery and how quickly it is scaling.
Valuation & Risk Factors
That said, it is important to understand the risks. Serve Robotics isn’t yet profitable and is in the early growth phase.
• Rich valuation – Shares are trading at rich price-to-sales ratios well above industry norms.
• Growing losses – Analysts recently revised their earnings per share estimates downwards, predicting higher losses for FY20.
• Volatility – Sporting a Relative Strength Rating of 96, SERV displays robust technical performance, but that means it is also prone to violent mood swings along with the market’s whims and earnings surprises.
Moreover, earlier in the year the company disappointed with the sales, which triggered a steep selloff in the stock.
Technical Outlook
Technically, analysts caution on both the short and long term. There’s also the possibility for SERV to double again should the momentum continue; however, it’s not yet in a confirmed breakout pattern. They might wish to wait for a clearer technical signal before taking any positions.
Should You Invest in Serve Robotics?
Shares of Serve Robotics are a high-risk, high-reward play. It has early growth that looks promising, healthy cash reserves, and bullish projections from analysts. Yet it also brings premium pricing, widened losses, and continued volatility.
If you’re a risk-tolerant investor with a multi-year time horizon, and belief in autonomous delivery, Serve Robotics could potentially be a speculative buy. But if you’re more of a stick-in-the-mud investor who is all about fundamentals and reliability, you might prefer to hold off for a time when the company can demonstrate consistent profitability and stability.