On Friday, RBC Capital Markets updated its outlook on CarGurus Inc. (NASDAQ: NASDAQ:CARG), raising the price target to $27 from the previous $26, while maintaining an Outperform rating on the company's shares. The firm acknowledged CarGurus' first quarter as generally solid, highlighting strong execution in the core marketplace.
The analyst noted the core business is experiencing steady low double-digit growth and is achieving this with an increase in traffic, dealer additions, and add-on products. The improved marketing leverage was particularly emphasized as a significant positive development.
Despite these achievements, the analyst pointed out that CarOffer, another segment of CarGurus' operations, continues to face challenges, and expectations for a quick turnaround are tempered.
As a result of the robust marketplace performance, RBC Capital has increased its EBITDA estimates for CarGurus. The firm's decision to adjust the price target upwards to $27 reflects this improved financial outlook.
Although the analyst has reservations about CarOffer's potential to significantly contribute to CarGurus' business model in the near term, there is a belief that the marketplace business is currently undervalued.
The analyst concluded that investors stand to gain from CarGurus' undervalued marketplace business at current levels, considering it alongside a "free call option" in CarOffer. The Outperform rating is reiterated, signaling confidence in the company's ongoing performance and potential for growth.
InvestingPro Insights
InvestingPro data indicates that CarGurus Inc. (NASDAQ: CARG) holds a market capitalization of $2.39 billion and is trading at a high earnings multiple with a P/E ratio of 81.45, which adjusts to 65.71 for the last twelve months as of Q1 2024. Despite a notable decline in revenue growth by -38.34% over the last twelve months, the company maintains a strong gross profit margin of 74.78%. These financial metrics highlight CarGurus' ability to retain a significant portion of its revenue as gross profit, which is a positive sign for investors looking at the company's core business efficiency.
Among the InvestingPro Tips, it is noted that CarGurus' management has been proactively engaging in share buybacks, a move that can signal confidence in the company's future and often results in an increased value of remaining shares. Furthermore, the company is in a healthy liquidity position, with liquid assets that exceed its short-term obligations, and holds more cash than debt on its balance sheet. This financial stability, coupled with the expectation that net income is anticipated to grow this year, could be particularly appealing to investors seeking companies with strong financial health.
For those interested in a deeper dive into CarGurus' financials and additional insights, there are over 5 more InvestingPro Tips available, which can be accessed through the dedicated InvestingPro platform. To enrich your investment analysis, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With this tool, investors can gain a comprehensive understanding of CarGurus' valuation and future prospects.
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