How to Trade DoorDash After a Disastrous IPO

Editor’s Note: DoorDash has had a wild ride since going public two weeks ago. And it’s not the only new company on Wall Street either. After a season of IPOs, Chris Johnson is going to tell you how to play DoorDash’s.

There’s an unquenchable investor thirst for risk and return in this market – and it’s evident in the fourth quarter’s IPO activity.

Since October 1, more than 70 companies went public.

The list ranges from smaller, unknown companies like healthcare name Seer Inc. (Nasdaq:SEER) and financial group HF Enterprises Inc. (Nasdaq:HFEN) all the way to bigger, more familiar names like tech companies McAfee Corp. (Nasdaq: MCFE) and PubMatic Inc. (Nasdaq: PUBM).

But one of the most-talked-about IPOs was that of food delivery company DoorDash Inc. (NYSE: DASH).

And if I’m being honest, this is the one that also confused me the most.

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During a pandemic, it makes sense that a food delivery service could and probably would fare well. But actually, I think that’s where things went wrong.

Traders ran into the proverbial fire as soon as DASH shares started trading, boosting the share price to $195. From there, the stock hung – if for only a moment – like Wile E. Coyote just after he runs off the edge of a cliff.

Today, DASH has lost more than 25% as it continues to form a short-term bearish trend.

With one of the newest names on Wall Street’s block hitting a low, one has to wonder – is it worth a buy?

Find the answer right here…

Should You Add DoorDash to Your Portfolio?

In my opinion, not yet.

My “Walk Down Main Street” approach to investing had me cautious of the stock from the beginning. The pandemic has done a lot of damage to the economy – but one positive outcome is that it has turned consumers’ focus to supporting the small businesses and restaurants in their community.

Third-party delivery services like Door Dash, Uber Eats, Postmates, and Grubhub actually take a large portion of the profits – up to 30% – when someone orders delivery through their apps. And it’s a deduction that oftentimes ends up hurting these smaller businesses.

I live in Cincinnati, and our City Council has voted a few times to limit the amount that these companies can charge for delivery. In return, that’s hurting DASH, right? It cuts into the company’s revenue.

Similarly, local restaurants are removing their offerings from DASH’s platform, claiming that they never gave the company permission to sell their menu items in the first placex. As a result, the tighter-knit communities are getting out to support the restaurants they love…

While they turn away from delivery services.

Now, we’re just two weeks into DASH’s public trading story. So, it’s very hard to call a top or bottom on DASH shares. What I can tell you is that this market was a little too hot to trot on this IPO. And that serves as a small reminder that we’re still due for that “healthy correction” that I keep talking about.

As for DASH shares, look for the selling pressure to continue as the stock tests $140. According to my chart read, a break of $140 should lead to a $120 target for DASH shares before we see the next strong round of technical buying.

My recommendation? (And here’s a warning, I love puns.) Don’t dash into DASH for now. Aggressive traders may want to consider at-the-money put options on the stock with my $120 target in mind.

And that’s all for the week, folks. I can’t wait to join you in the new year.

Happy New Year,

Chris Johnson

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