If I Could Only Buy and Hold a Single Stock, This Would Be It.

When looking where to allocate capital, investors have thousands of businesses to choose from. This can make it difficult to narrow down where you should even start to look for opportunities.

A smart strategy is to first identify a company that you're a customer of and whose products and services you value. This mental framework has worked for me, as there are many consumer-facing businesses that can fall on my radar.

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Along the same vein, if I could only buy and hold a single stock, this would be it.

Providing value to all

Uber (NYSE: UBER) makes for a very interesting investment candidate. One undeniable reason is because it benefits from a powerful network effect, which makes up its economic moat.

The Uber platform becomes more useful the larger it gets. More drivers create more supply, which benefits riders because there will be better pricing and lower wait times. And more demand results in drivers being able to maximize their revenue.

Another way to think about this is to consider the immense value Uber provides to its key stakeholders. You'll often hear about drivers demanding employee status or asking for more money from each ride or delivery. That's understandable. But without Uber, they would lose the ability to obtain greater utility from their cars and generate revenue from their free time.

The value for riders is clear, too. Having access to on-demand transportation means there might be no need to buy a car, particularly if it sits in a garage most of the time. Uber is also a positive development for the world, as it has helped reduced drunk driving incidents in the U.S.

For restaurants or grocery stores, for example, plugging into the Uber platform introduces a broad audience. And this can support higher sales. It's essentially a winning solution for all parties involved.

Profitability ready to soar

In 2022, Uber reported an alarming $9.1 billion net loss. That reversed course and turned into a $9.9 billion net profit last year. Perhaps the drastic bottom-line improvement is a key reason why the shares have surged 122% higher in the past two years.

Management has been focused on creating a more efficient organization. Spending on sales and marketing and research and development was actually lower in 2024 than in 2023. There's likely more untapped operating leverage. That's because the technology platform is already built out, and it could handle much larger booking volume. In other words, each ride or delivery, in theory, produces a high incremental margin.

The leadership team believes that Uber's adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) will rise by a 30% to 40% annualized pace through 2026. According to Wall Street consensus analyst estimates, this should lead operating income to increase at a compound annual rate of 55% over the next three years. That's an extremely robust outlook.

There isn't a demand problem. Uber projects yearly growth in the mid-to high teens for gross bookings over the next couple years. There's a huge opportunity to boost rider frequency. In the fourth quarter of 2023, 50% of users took only one or two trips per month. Figuring out ways to raise engagement, like with the lower-cost UberX Share, can be incredibly lucrative in this regard.

In order to own Uber, which is an advantaged business that is ready to see its bottom line expand rapidly, investors are being asked to pay a forward price-to-earnings ratio of 22.6. This matches the valuation of the overall S&P 500.

It can be emotionally challenging to buy a company whose shares have skyrocketed in the past couple of years. But there appears to be sizable upside from current levels. This makes it a worthy investment candidate.

Should you invest $1,000 in Uber Technologies right now?

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.