Shares of online new and used car marketplace Cars.com (NYSE:CARS) jumped 5.52% in the morning session after JP Morgan analyst Rajat Gupta initiated coverage on the company's stock, along with CarGurus, 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 +8% EBITDA CAGR for Cars.com between 2023 and 2025 and assigned a price target of $23. The price target implied a potential 20% upside from where shares were traded when the report was released.
What is the market telling us:
Cars.com's shares are not very volatile than the market average and over the last year have had only 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. The previous big move was about two months ago, when the stock dropped 15.1% on the news that the company reported first quarter results that narrowly beat analysts' revenue expectations. Gross margin and EPS also came in above Consensus estimates. In addition, revenue for the next quarter came in roughly in line with Consensus. However, the number of dealer customers fell, and the revenue growth remained weak. The declining customer count will likely raise concerns given the growing challenges auto dealers face as post-pandemic demand growth continues to moderate.
Cars.com is up 39.8% since the beginning of the year, and at $19.34 per share it is trading close to its 52-week high of $19.90 from April 2023. Investors who bought $1,000 worth of Cars.com's shares 5 years ago would now be looking at an investment worth $677.28.
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