Why CarGurus (CARG) Stock Is Up Today

Anthony Lee /
2023/06/27 9:46 am EDT

What Happened:

Shares of online auto marketplace CarGurus (NASDAQ:CARG) jumped 5.34% in the pre-market session after JP Morgan analyst Rajat Gupta initiated coverage on the company's stock, along with Cars.com, giving them both an Overweight (Buy) rating. The analyst highlighted the auto marketplace sector as a safe space amid macro uncertainty. Gupta also highlighted the attractive features of both stocks, including being asset-light, benefiting from generative AI applications, and having relatively stable earnings and favorable free cash flow growth expectations. The analyst projected a +20% EBITDA CAGR for CarGurus.com between 2023 and 2025 and assigned a price target of $29. The price target implied a potential 40% upside from where shares were traded when the report was released. After the initial pop the shares cooled down to $21.59, up 4.86% from previous close.

What is the market telling us:

CarGurus's shares are somewhat volatile and over the last year have had 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was about two months ago, when the stock gained 9.04% on the news that the company reported first quarter results that exceeded analysts' estimates for revenue, adjusted EBITDA, free cash flow, and earnings per share (EPS). Additionally, revenue, adjusted EBITDA and EPS guidance for the next quarter were above Consensus. The company's guidance was highly reassuring in light of a choppy auto market dealing with normalization of demand post-COVID and potential lending headwinds challenges due to the recent and potentially growing banking crisis.

CarGurus is up 50.1% since the beginning of the year, but at $21.59 per share it is still trading 16.1% below its 52-week high of $25.72 from August 2022. Investors who bought $1,000 worth of CarGurus's shares 5 years ago would now be looking at an investment worth $636.99.

Is now the time to buy CarGurus? Access our full analysis of the earnings results here, it's free.