On Friday, RBC Capital Markets adjusted its outlook on shares of CarGurus Inc. (NASDAQ: NASDAQ:CARG), increasing its price target to $30.00 from the previous $27.00. The firm has maintained an Outperform rating on the stock, signaling confidence in the company's performance.
CarGurus, known for its online automotive marketplace, has been experiencing a robust acceleration in its core business, attributed to an improving used-car market. This growth has been further bolstered by the significant uptake of new, differentiated add-on products. Additionally, CarGurus has been successful in attracting a higher number of new and notably larger dealerships.
The company has also demonstrated a strong ability to improve profit margins, which RBC Capital Markets believes is not fully recognized by the market. Although CarOffer, an acquisition by CarGurus aimed at enhancing its digital wholesale operations, is progressing more slowly than anticipated, the analyst remains optimistic. The current stock valuation, trading at an estimated 9 times Marketplace EBITDA for the next year, suggests that investors can acquire the core business at a modest discount, with potential upside from any improvements in CarOffer.
The revised price target of $30 is based on a 12 times enterprise value to 2025 estimated EBITDA multiple, and an 11 times multiple for the 2025 Marketplace EBITDA. RBC Capital's assessment underscores a positive outlook for CarGurus, as they anticipate further growth and profitability in the company's future.
In other recent news, CarGurus Inc. has seen an increase in dealer revenue growth, leading to raised stock targets from multiple analyst firms. Needham has increased the stock's price target to $27, while DA Davidson has raised their target to $26.50. These adjustments follow the company's second-quarter earnings report, which showed higher revenue and growth per dealer. Despite facing potentially tougher comparisons in the second half of the year, third-quarter guidance indicates a robust core business.
BTIG has also updated its price target for CarGurus to $30, maintaining a Buy rating on the stock. This decision came after CarGurus reported marketplace revenue surpassing its guidance, with figures reaching $195 million. The company's projection for third-quarter marketplace revenue is between $199-$204 million, indicating potential growth.
InvestingPro Insights
As CarGurus Inc. (NASDAQ: CARG) continues to navigate the online automotive marketplace, recent data from InvestingPro provides additional context to RBC Capital Markets' optimistic outlook. With a market capitalization of $2.76 billion and a significant gross profit margin of 74.78% over the last twelve months as of Q1 2024, CarGurus showcases its ability to generate revenue efficiently. Despite a notable revenue decline of 38.34% during the same period, the company holds a strong liquidity position, with liquid assets exceeding short-term obligations, an InvestingPro Tip that reinforces the company's financial health.
InvestingPro Tips also highlight that CarGurus is trading near its 52-week high, at 98.25% of this peak value, and analysts predict profitability this year, which may contribute to the positive sentiment surrounding the stock. Additionally, CarGurus' management has been actively buying back shares, a sign of confidence in the company's value. It's worth mentioning that CarGurus does not pay a dividend, indicating that it may be reinvesting earnings back into the company to fuel growth.
For investors seeking a more in-depth analysis, InvestingPro offers additional tips on CarGurus, which can be found at InvestingPro CarGurus. These insights may provide valuable guidance for those looking to make informed decisions about their investments in the company.
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