Not a lot of stocks can be bought for less than $20, and many sub-$20 stocks are best avoided by most investors. However, there are some good buys under $20 a share, if you know where to look and what to look for. One of these stocks is in the midst of an impressive turnaround. I'm talking about Lyft (LYFT -0.30%), the No. 2 ride-sharing operator in the country.

While larger rival Uber Technologies (UBER -1.08%) has attracted much of the recent attention from investors in the space, Lyft is now profitable, growing solidly, and innovating across the business, paving the way to future growth.

Lyft had a strong Q4 and looks to build on that success

Lyft just reported fourth-quarter earnings, posting 15% growth in gross bookings to $4.3 billion. Revenue rose 27% year over year to $1.55 billion, which was slightly ahead of the consensus at $1.54 billion, and revenue continued to outgrow bookings as it became more efficient with its driver and rider incentives.

The business is also now profitable on a generally accepted accounting principles (GAAP) basis, reporting $22.8 million in net income for the full year and $61.7 million in the fourth quarter. It's also highly profitable on a cash basis with free cash flow of $766.3 million. Additionally, the company hit or exceeded the targets it gave at its Investor Day conference in 2024.

Lyft stock pulled back on the news as the company's first-quarter guidance was slower than investors wanted to see, but the fundamental trajectory of the business remains sound. Let's take a look at three reasons why Lyft looks poised to go higher.

Image source: Getty Images.

1. It's outperforming Uber in key metrics

Lyft has about 24% market share in the U.S. with Uber controlling the remainder. The two companies operate in a duopoly in the U.S. ride-sharing market so for Lyft to grow its business, it needs to take market share from Uber or grow alongside the industry.

Lyft is beating Uber in several key metrics as management highlighted on the earnings call. First, Lyft's average arrival time is now the fastest in the industry, and quick arrival times are a top priority for riders. The company also said that its driver preference advantage expanded over Uber in the quarter as drivers now prefer Lyft by 16 percentage points over its rival.

Finally, Lyft also continues to out-innovate Uber. It introduced a price lock feature, allowing riders to avoid primetime or surge pricing for a regular ride by paying a small fee. Uber announced on its recent earnings call that it would follow Lyft and introduce a similar product.

2. Lyft has multiple growth opportunities

Ridesharing remains Lyft's core business, and that still has an ample runway for growth as both Lyft and Uber continue to expect double-digit growth in bookings. The company forecast mid-teens growth in rides for the first quarter and 10% to 14% growth in bookings, reflecting a more challenging pricing environment.

However, the company is also building a media business, generating significant revenue through advertising, and it's tapped into partnerships with the likes of DoorDash and Mobileye. In fact, it just announced a new plan to launch autonomous vehicle ride-sharing with Mobileye in Austin, Texas, in 2026.

Lyft also owns several bike and scooter share systems, though it's considered selling some of them.

3. The stock looks like a bargain based on cash flow

Lyft finished the year with free cash flow of $766.3 million, and it currently has a market cap of less than $6 billion. That means the stock now trades for less than 8 times trailing free cash flow. Even if you exclude stock-based compensation, free cash flow was still $435 million, meaning the stock trades at 13 times trailing free cash flow adjusting for stock-based comp. That's similar to the company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $382.4 million.

For a company that just grew revenue by 27%, operates in a rapidly growing industry, and has several emerging revenue streams, that valuation looks like a bargain.

For less than $20, investors can get their hands on a stock with significant upside potential, especially if management continues to execute the way it has over the past year.