Charles Lemonides of ValueWorks recommends stocks that are bargain-priced versus larger competitors
Instacart's stock is a much better bargain for long-term investors than rival DoorDash, according to Charles Lemonides, the founder of ValueWorks.
It's natural for investors to be fixated on companies that dominate their industries, but smaller rivals can often offer better value, according to Charles Lemonides, the founder of ValueWorks.
"There's a winner-take-all fallacy in certain industries," he told MarketWatch in a recent interview, "and there are opportunities among overlooked upstarts."
Lemonides, whose firm manages about $400 million through a hedge fund and several strategies for individual investors, suggested looking at ratios of enterprise value (the market capitalization of a company's stock, plus its debt less its cash) to estimated sales and earnings before interest and taxes, or EBIT:
Company EV/ forward sales EV/ forward EBIT Projected revenue CAGR from calendar 2026 through 2028
Lyft 0.7 18.0 10.7%
Uber Technologies 2.4 14.9 14.4%
Maplebear (Instacart) 2.5 13.1 10.6%
DoorDash 4.1 45.9 19.6%
Rivian Automotive 1.9 N/A 44.7%
Tesla 10.7 190.4 15.9%
Source: FactSet
The valuations are based on consensus sales and EBIT estimates among analysts polled by FactSet. The rightmost column includes projected compound annual growth rates (CAGR) for the six companies' revenue over the next two calendar years. These all exceed projected revenue CAGR of 8.7% for the S&P 500 SPX and 8.4% for the S&P 500's consumer discretionary sector.
He used as one example the ride-share category. While there is an advantage to being a more established player in an industry, customary expectations of economies of scale didn't hold true for Lyft (LYFT) and Uber (UBER), he said.
"Lyft has been growing its top line faster than Uber," Lemonides said. The consensus estimate among analysts polled by FactSet is for Uber's 2026 revenue to total $57.8 billion, up 55% from $37.3 billion in 2023. But Lyft is expected to post $7.4 billion in revenue for 2026, up 68% from $4.4 billion in 2023.
Lemonides also likes Lyft as more of a "pure play" on the U.S. ride-sharing business than Uber, he said. Lyft operates almost exclusively in the U.S., and nearly all of its revenue comes from ride sharing. Uber reported that 46% of its second-quarter revenue came from outside the U.S., and 48% came from delivery and freight services.
"Lyft also has a cleaner balance sheet with $900 million in total debt versus $23.5 billion for Uber," Lemonides said.
Maplebear (CART), which does business as Instacart, trades at much lower valuations to sales and EBIT estimates than rival DoorDash (DASH). Instacart has traditionally focused on delivering groceries, while DoorDash mainly delivers prepared food from restaurants. Each is branching out into the other's territory.
Lemonides called DoorDash's main business "easier" than that of Instacart but also pointed to the latter's competitive moat. "If you tried to do a grocery business [as] a startup tomorrow, you would have to make a tremendous investment to develop the infrastructure and the people to do it, and then spend a ton on marketing to get a customer base."
For Rivian (RIVN), the valuation comparison can only be based on sales estimates, because the company isn't expected to become profitable over the next two years. Tesla (TSLA) trades at a valuation-to-sales multiple that's five times as high.
Rivian began delivering its R2 SUV to customers during the second quarter and expects to deliver a total of between 62,000 and 67,000 vehicles this year. The company expects eventually to increase annual production capacity at its plant in Normal, Ill., to 215,000 vehicles, adding potentially another 300,000 in capacity through its plant in Stanton Springs, Ga.
"The case can be made that it will be the most popular car in America," Lemonides said of the R2. He sees the R2, with a base price of $44,990, as the only serious competitor to Tesla's Model Y, he said, because other companies' electric SUVs "aren't being pushed and aren't priced right."
"By the end of the year I would expect a 100,000 [annualized] run rate, and by the end of next year a 250,000 run rate" for Rivian vehicle deliveries, he said. "Their profitability comes when the R2 gets to scale."
The market
U.S. stock futures (ES00) (NQ00) pointed to opening gains, following the 0.5% decline in the S&P 500 SPX on Wednesday after the Federal Reserve's interest-rate decision. The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell below 5%, and crude-oil futures (CL00) weakened.
Key asset performance Last 5d 1m YTD 1y S&P 500 7551.81 -1.11% -2.03% 10.32% 14.42% Nasdaq Composite 25,978.42 -1.05% -1.34% 11.77% 16.70% 10-year Treasury 4.992 2.30 28.60 82.00 88.40 Gold 4366.9 -1.81% -4.67% 0.80% 18.20% Oil 101.72 5.22% 20.52% 77.18% 59.01% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
The economic data released Thursday confirmed the prevailing narrative: weekly jobless claims fell 10,000 to 196,000, a signal of a resilient jobs market; the Philadelphia Fed manufacturing index fell, albeit to a strong reading of 37.8; and housing starts declined by 2.6% to a 1.28 million annual rate, the second-lowest reading of the year.
Home builder Lennar (LEN) late Wednesday reported that its third-quarter profit more than halved.
The U.S. Treasury is auctioning $19 billion in 10-year Treasury inflation-protected securities, or TIPS.
The Bank of England held interest rates steady and said it would pause for six months the sale of government bonds.
Nebius (NBIS) told customers it was raising its GPU cloud service prices by an average of 20%, starting in October. Rival CoreWeave (CRWV) announced a plan to sell $3 billion in convertible notes.
Generac $(GNRC)$ struck a deal worth up to $8 billion to provide backup generators for Amazon (AMZN) data centers. Amazon is getting warrants in Generac as part of the transaction.
The Securities and Exchange Commission is hosting a roundtable on 24-hour trading in the stock market.
Trump wanted Canada as the 51st state. He ended up pushing it toward the European Union.
The chart
AQR Capital Management, the quant-driven investment firm, mapped how different assets and strategies are correlated to different economic environments. "One simple takeaway from Exhibit 4 is that not many investments 'like' rising inflation," according to research from the firm's portfolio-solutions group. It said allocations to inflation-linked bonds, commodities and trend following may help to improve portfolio resilience.
Top tickers
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-Philip van Doorn