Back to top

Image: Bigstock

Bear Of The Day: Cars.com (CARS)

Read MoreHide Full Article

Cars.com (CARS - Free Report) is a Zacks Rank #5 (Strong Sell) and this comes as used car prices are spiking.  That is not something you want to see and that is the reason that this stock is now the Bear of the Day.

Description

Cars.com Inc. operates an online automotive platform. The Company offers new and used vehicle listings, expert and consumer reviews, research tools and other information. It also engaged in the sale of display advertising to national advertisers. Cars.com Inc. is based in Chicago, United States.

Used Car Prices Spike

There are multiple reports about the price of used cars being up around 17% on a year over year basis.  This should be drawing a lot of people to sites like cars.com as they shop for the best deals. 

One site that is looking a lot better is CarGurus (CARG - Free Report) as that stock has a Zacks Rank #3 (Hold) and sports a great growth divergence with an A for Growth and a D for Value. I personally like this site a lot more than Cars.com --- as they offer some neat charts and good information.

Earnings History

I always look at the earnings history as it tells me if management can effectively communicate with Wall Street.  In the case of CARTS, I see three beats in the last four quarters. The one time the company didn’t beat the number it posted a big miss.

The most recent quarter has the company reporting 9 cents when 35 cents was expected.  That translates to a 26 cent miss or a negative 74% earnings surprise.  This is not what you want to see.

Earnings Estimates

I see estimates for this quarter are dropping down to 26 cents from 29 cents just 30 days ago

Next quarter is down to 27 cents from 29 cents over the same time period.

The full year only dropped one cent to $1.31, so that that bad.

Next year is holding still at $1.49.

Valuation

The valuation isn’t that bad for CARS.  I see a 11x forward earnings multiple and a price to book of 3x.  Both of those levels are pretty low considering this is an asset slim business.  The price to sale multiple of 1.8x is also right were it should be.

Operating Margins dropped from 17% to 10.5% in the most recent quarter and that isn’t something that investors like to see. Contrast that to CARG which has seen margins increase in the last two quarters, moving from 8.8% to 12.9% and then 15.6% in the most recent quarter.

 

+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities

In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.

Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.

Click here to download this report FREE >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Cars.com Inc. (CARS) - free report >>

CarGurus, Inc. (CARG) - free report >>