Over the long-term, being bullish is the way to go. However, that doesn’t mean investors should buy anything and everything at any price. DoorDash (NYSE:DASH) is a great example of that concept. While DoorDash stock isn’t the worst in the world, investors can do much better.

The business is benefiting massively from the novel coronavirus. That’s not to say food delivery wasn’t a trend before Covid-19 appeared or that it will disappear when Covid-19 is gone. However, in my view it’s seeing a “one-time event” dramatically accelerate revenue. 

I am a bullish investor because that’s what pays the best over the long haul. The numbers don’t lie and betting against stocks long term will leave investors broke. 

While I am optimistic about the future and especially about this year, it would be foolish if I didn’t acknowledge that there are some pockets of euphoria in the market as well. Specifically, IPOs and SPAC offerings have just gone through the roof. 

Breaking Down DoorDash Stock

As many of you know, DoorDash stock was a recent IPO. The company made its debut on Dec. 9 and the stock has been on fire. I have no problem with a company coming public with much fanfare and seeing enthusiasm in the stock price as a result. 

But what we’re seeing here is unhealthy action. 

DoorDash was originally aiming to price its IPO between $75 and $85 a share, or $80 at the midpoint. That range was moved up to $90 to $95, or a midpoint of $92.50. DoorDash ended up pricing at $102 a share — more than 27% above the midpoint of the original range. 

However, the stock then opened for trading at $182!

It has been a bit volatile since, with several pullbacks, but shares just hit a new 52-week high of $221.40 on Jan. 14. I’m sorry friends, but the valuation here just doesn’t make sense. 

Valuation

At the highs, it left DoorDash stock with a market capitalization of $63.4 billion. This is the exuberance I am talking about. For instance, Ben Winck of Business Insider points out that “[t]he pricing brings DoorDash well above the roughly $15 billion private valuation it achieved earlier in 2020, which was already a major increase from the $1.4 billion it was worth in 2018.”

We can’t fully extrapolate private market value vs. public market value. However, revenue is set to increase four-fold from $700 million in 2018 to a forecast of $2.85 billion in 2020, while the valuation has seen a 45-fold increase in the same time. 

Even if we looked past that, the valuation overall here just doesn’t make sense. Granted, DoorDash is seeing a large acceleration due to the novel coronavirus. So long as Covid-19 is around, the company has a catalyst. But what happens when restaurants open back up and we don’t need to dine exclusively via takeout from a favorite places?

The answer is simple: People will go back out to eat or order delivery less. 

In that respect, DoorDash stock came public at the perfect time. As it nears the end of its fiscal year, analysts are looking for another strong year of growth in 2021. Consensus estimates call for $3.67 billion in sales, which would be up about 29% from 2020. 

For this, investors are willing to pay 23 times this year’s sales and 18 times forward estimates. That’s lofty and I’m putting it kindly. 

Despite the catalysts of a pandemic-filled 2020, this is a “seven-year-old startup that lost $667 million in 2019, and lost $149 million in the first nine months of 2020.”

The nature of this business is a race to zero margins. Because of intense competition, DoorDash’s peers will continue to undercut each other until there’s no meat left on the bone. The fact that it’s not making money in a year like this is a concern for me, particularly at this valuation. 

Combined with the fact that customers will not continue to pay the type of fees associated with food delivery once they’re safe and able to go back out and I just don’t see the long-term opportunity shaping up DoorDash stock at these levels.

Bottom Line on DASH Stock

Investing in recent IPOs can be difficult due to the fact that most offer just a sliver of stock. The market then works itself up into a frenzy trading that low-float allocation. 

Is that the case with DoorDash stock? Probably, while also combined with markets at all-time highs and euphoric-like price action in IPO and SPAC stocks. 

Unfortunately though, these low floats make it a tough game to predict in the short term. Maybe DASH stock will go on to take out its high. Perhaps it will break below its IPO-day high at $195.50 and move lower. 

It doesn’t really matter, though. The valuation doesn’t support the current price in the intermediate to long term and as a result, we don’t really care what the stock does in the short term. 

Let’s see how DoorDash stock looks after its lock-up expirations and once more shares hit the open market. 

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.