One of the most perplexing public companies to decipher in the new normal is easily ride-sharing specialist Uber Technologies (UBER). While the company facilitated a radical paradigm shift in personal mobility, it has encountered significant viability concerns. With the COVID-19 crisis disrupting society, Uber presents massive risks. At the same time, bold contrarians have bid up UBER stock in the derivatives market.
The confusion regarding the ride-sharing pioneer’s future trajectory stems from its wild price action. When the SARS-CoV-2 virus first upturned American society, few people wanted to share close space with strangers. Therefore, UBER stock understandably plummeted. At the same time, the underlying company had been expanding to other services, primarily food deliveries.
Without contactless transactions becoming the norm, Uber again found itself leading the way. Thanks to its reliable, accurate and intuitive communications API, the platform helped offer some semblance of normalcy to consumers. Gradually, as fears of COVID-19 faded, UBER stock accelerated, surging up until April of last year.
Since then, shares have been mired in a downward trend line. On a year-to-date basis, UBER stock dropped more than 34% of market value, a shell of its former glory. Now, inflationary pressures have seen many consumers pull back their discretionary spending, imposing a dark cloud over the ride-sharing outfit.
Still, UBER recently managed to be one of the subjects of unusual options activity.
Taking Bold Bets on UBER Stock
When the dust settled on the Aug. 31 session, more than a few observers saw their eyebrows being raised. Mainly, bullish traders moved into the $30 call options with an expiration date of Sept. 9, 2022. With UBER stock closing at $28.76 in the open market, it needs to move up 4.3% to be in the money.
Volume for the above transaction reached 23,092 contracts against an open interest reading of 975. Furthermore, the bid-ask spread as represented by the midpoint price (45 cents) came out to 6.7%. Though not the widest spread in the options arena, it’s enough to provide some margin of safety for the market maker.
Nevertheless, the bullish wager here moves against broader sentiment for UBER stock. According to Barchart, the put/call open-interest ratio currently stands at 0.81. Usually, the demarcation between bullish and bearish sentiment is 0.70. Anything below this level indicates optimism while anything above implies that traders are buying more puts than calls.
Curiously, though, analysts have increasingly supported the positive spectrum of Uber’s potential trajectory. In the current month, covering analysts have an average “strong buy” rating on UBER stock, broken down as 20 strong buys, three moderate buys and three holds.
Three months ago, out of 19 analysts, 16 had a strong buy rating, one had a moderate buy and two went with a hold.
How Uber Could Make a Comeback
Although the case for UBER stock is speculative – again, shares lost almost 35% of market value so far this year – it’s not without fundamental merits. Should employers continue to recall workers back to the office, the ride-sharing firm could get interesting.
Indeed, if recessionary pressures rise, the Society for Human Resource Management (SHRM) notes that employers could gain conspicuous leverage. It wrote the following:
With layoffs or hiring freezes, managers will give employees' performance greater scrutiny. Suddenly, "out of sight, out of mind" could take on new significance. Employees might lean more toward coming in to the office to show determination and a strong work ethic and get some in-person face time with their boss.
Companies are taking precautions not to favor the ones who do. The Wall Street Journal reported recently that HubSpot, a Boston-based digital marketing firm, plans to track promotions in the coming years to ensure people who rarely visit the office aren't disadvantaged by "proximity bias," said Katie Burke, its chief people officer.
Still, not showing up at all or cooperating to the bare minimum presents significant risks to worker bees. After all, while some companies might be careful in not imposing a negative bias on workers who refuse to return physically, those who do make the daily commute then have a legitimate grievance: why should they go back if there’s no reward for doing so?
Logically, employers may start to phase out telecommuting privileges in the name of fairness, which then might bode cynically well for Uber’s food-delivery arm, Uber Eats. More people in the office means a return to pre-pandemic activities, including ordering takeout. As well, management may use Uber Eats to cater food for various corporate events.
A Tough Wager
Ultimately, though, UBER stock is best left for hardened speculators. While the return-to-the-office narrative is intriguing, the sentiment for food deliveries doesn’t operate in a vacuum. If economic pressures freeze hiring, they might also stymie discretionary services like Uber.