CarGurus stock upgraded to Market Outperform By Investing.com

On Friday, JMP Securities raised its rating on shares of CarGurus Inc. (NASDAQ:) to Market Outperform from the previous Market Perform status, setting a price target of $30.00. The upgrade was based on the firm’s positive outlook on the company’s marketplace business and an anticipated removal of the negative impact from its digital wholesale operations.

JMP Securities sees potential in CarGurus’ core online marketplace business and expects it to continue demonstrating strength. The firm has decided to assign no value to CarGurus’ digital wholesale segment, which is currently perceived as exerting a $3 to $7 negative effect on the company’s share price. The belief is that this segment’s unclear performance trajectory and adoption rates have been weighing down the stock’s valuation.

The new price target represents an expectation of growth, resting on an enterprise value to estimated 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of 11 times. JMP Securities’ outlook suggests confidence in the firm’s financial projections for CarGurus’ marketplace business.

The analysis also indicates a potential upside for the stock, ranging from $1.50 to $5.50 per share, which could materialize if the digital wholesale business begins to clarify its future direction and gains traction. This upside is contingent upon greater clarity regarding the segment’s trajectory and its adoption in the market.

In other recent news, CarGurus Inc. has reported mixed first-quarter results, with a 12% year-over-year increase in marketplace revenue to $187 million, offset by a significant 56% decline in its Digital Wholesale segment revenue, which stood at $29 million. The company has also shown a strategic focus on profitability, repurchasing $81.1M worth of shares in the first quarter.

Additionally, CarGurus has introduced several new features, such as the Next Best Deal and the CG Buy Online platform, aiming to enhance customer experience and dealer engagement. Analysts maintain a Market Perform rating for CarGurus, with RBC Capital Markets raising the price target from $26.00 to $27.00. Despite facing challenges, particularly in its Digital Wholesale segment, CarGurus continues to navigate the complex online automotive marketplace, focusing on its core marketplace and profitability.

InvestingPro Insights

InvestingPro data provides a deeper dive into CarGurus Inc.’s (NASDAQ:CARG) financial situation, revealing a company that is trading at a high earnings multiple with a P/E ratio of 76.63. This is a key metric that might interest investors looking for growth stocks, though it also suggests a premium valuation. The company’s market capitalization stands at $2.62 billion, reflecting its position in the market. Additionally, the revenue for the last twelve months as of Q1 2024 is reported at $898.08 million, with a gross profit margin of 74.78%, indicating strong profitability in terms of revenue conversion.

On the strategic front, two InvestingPro Tips highlight that management has been actively buying back shares and that the company holds more cash than debt on its balance sheet. These are positive signs of confidence from management and financial stability, respectively. Furthermore, analysts have revised their earnings upwards for the upcoming period, suggesting potential for future growth. For investors seeking more in-depth analysis, InvestingPro offers a range of additional tips; in fact, there are 9 more tips available for CarGurus Inc. at https://www.investing.com/pro/CARG.

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