If you have not heard of CarGurus (NASDAQ: $CARG) before, it’s inevitable you will at some point in the future. I personally have used the service many times and even bought a car 10 hours away from where I live.
CarGurus has grown from starting as an automotive community blog in 2006 to now becoming the number one US automotive online marketplace.
The technology behind CarGurus proprietary algorithm has been the foundation of the company’s success. CarGurus prides themselves on creating transparency for the consumer. Not only does the website algorithm take into account dealer ratings and experience, it provides an instant market value of a vehicle to give the consumer confidence in prices as advertised from car dealers. Makes the car shopping experience best in class.
I am sure you have heard or experienced a typical “car salesman” story that left a sour taste in your mouth. Rest assured, CarGurus solves the in person hassle involved with negotiations and opens up the entire vehicle inventory to your fingertips.
CarGurus Instant Market Value Algo
The algorithm provides the following options to help a consumer assess the prices of vehicles available at many different dealerships:
- Great Deal
- Good Deal
- Fair Deal
- High Price
- Over Priced
When shopping for a vehicle, simply having the algo output of one of the six ratings above can make the car buying experience much less stressful. You don’t want to feel like you are getting ripped off when you walk into a car dealership to purchase.
Search Platform Ability
In addition, a key strength of the CarGurus platform is the ability to search dealer inventories nationwide while sitting on your couch, in your pajamas. You can pick engine type, year, new or used, type of vehicle, and even the specific features that you are looking for.
When I recently bought a CPO vehicle, I wanted specific features for the sound system, engine, and drivetrain. The features I wanted limited the amount of available vehicles at that trim level. I even found that CarGurus search function was better than the OEM’s website.
After using CarGurus for about three months of weekly searches, I was able to find the right car. You can get in direct contact with the dealer, receive pictures, and get the deal done with ease.
“We’re a matchmaker, if you will, of the transparent process where consumers and dealers buy from each other very efficiently.”Sam Zales, Chief Revenue Officer of CarGurus
Diving Into the Numbers
CarGurus has a CAGR of 29% since 2016. Total revenue for 2020 was $551M, of which international contributions only made up 6% of the total. Comparing to 2016, international revenues were less than 1%. Positive sign to see that CarGurus is showing progress expanding internationally.
Despite the new vehicle volumes not expecting to reach 2019 levels for a couple of years, revenue expansion in both the US & internationally markets could easily grow for CarGurus.
Clearly, the United States is the driver for CarGurus. Operating income in 2020, despite a challenging year with COVID, just fell short of double what it was the year prior. A part of the growth in operating income was due to margin expansion. In 2019, the company’s operating margin was 13% and closing out in 2020, margin has increased to 23%.
An important split is also looking at the international operating income. Clearly negative, but with the margin enhancements and revenue growth in the United States, CarGurus is positioned to fund continued international expansion. I also like to see that the operating loss has improved since 2019.
First Quarter 2021 Outlook
Based on the Q4 2020 business update from CarGurus, the company is forecasting $156M-$160M in revenue and a positive non-GAAP earnings per share of $0.21-$0.23.
Operating margins are expanding. Net income is growing. The company has zero debt. Assuming no additional disruptions from COVID in 2021, revenue should continue growing to surpass 2019.
CarGurus presents a tremendous investment opportunity. According to simplywall.st calculations for valuation, CarGurus is nearly 50% undervalued. As we also noted in our analysis of Ford Motor Company, Sentiment is turning positive for the automotive industry.
CarGurus may be an underrated stock to consider in 2021. May want to think about heading over to CarGurus website to see the product for yourself before making any investment decisions.
At the time of publication, the author of this article does not hold shares of CarGurus.