Now is not the time to hitchhike with LYFT stock

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Lyft (NASDAQ:LYFT) shares were hit hard by the Covid-19 pandemic, but are now working to recover. This won’t be easy, however, as Lyft faces not just one, but several lawsuits over alleged assaults.

This could put negative pressure on LYFT stock, which could also mean scrutiny by the Federal Trade Commission, or FTC, regarding possible exploitation of the gig worker.

If Lyft investors were counting on a spectacular post-pandemic comeback, they’re sure to be disappointed. In the most recent quarter reported by the company, Lyft posted GAAP loss of profit $377.2 million, significantly worse than the previous quarter’s loss of $251.9 million.

It’s hard to even measure Lyft’s value, since the company doesn’t have a price-to-earnings ratio based on the past 12 months. Besides, there are other problems on the horizon. A government crackdown combined with a slew of lawsuits will make it very difficult to invest in Lyft with confidence.

What’s going on with LYFT stock?

LYFT stock has been underwhelming in 2022, to say the least. Shares started the year near the $45 level, then fell to $14 and recently reversed course.

There really isn’t much value here, just steady price cuts. Again, Lyft is not a profitable business on a GAAP basis. Then it’s really not too shocking Bank of America analyst Michael McGovern blames Lyft for ‘poor performance’ assessment as well as a not particularly ambitious price target of $14.

In addition, the company’s investors now have to worry about a government crackdown on some companies that hire gig workers. The FTC warned of a “power imbalance” in which some companies control their gig workers through algorithms.

Apparently, this makes workers “more vulnerable to harm from unfair, deceptive, and anticompetitive practices and likely to increase such harm when it occurs.”

Samuel Levine, director of the FTC’s Office of Consumer Protection, had some harsh words for companies that might try to reclassify gig workers. “Regardless of how gig companies choose to classify themselves, gig workers are consumers entitled to protection under the laws we enforce,” Levine said.

The FTC crackdown could spell continued trouble for Lyft, which relies on gig drivers. FTC oversight could lead to fines imposed on Lyft and/or policies requiring Lyft to pay its drivers more.

Legal action can cause reputational damage

Along with the government’s crackdown on companies that hire gig workers, there’s another ongoing problem for Lyft. Report from TechCrunch provided details of 17 separate lawsuits against Lyft. Those lawsuits involve drivers and passengers who allege they were assaulted during Lyft rides. Additionally, the lawsuits accuse Lyft of “failing to protect its users,” TechCrunch reports.

Lyft has apparently disputed some of the claims, but the reputational damage has already been done. Just TechCrunch the report alone could be enough to turn some people away from using Lyft.

It could also prove extremely expensive for Lyft. Remember, we’re not talking about a single class action lawsuit here. Lyft faces 17 separate lawsuits filed in several US states. These lawsuits can take months or even years to resolve.

What you can do now

Do you really want to invest in a company dealing with reputational damage and potentially expensive legal action? This is a question that any prospective investor in LYFT stock should carefully consider.

Then there’s the FTC crackdown to worry about. Remember that Lyft’s problems are your problems if you choose to invest in the company. So it’s wise to stay on the sidelines if you’ve been thinking about buying Lyft stock now.

As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff primarily responsible for this article held (directly or indirectly) any position in the securities mentioned in this article.

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