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Surging Earnings Estimates Signal Upside for CarGurus (CARG) Stock

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CarGurus (CARG - Free Report) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

Analysts' growing optimism on the earnings prospects of this online auto shopping platform is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For CarGurus, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.14 per share, which is a change of +27.27% from the year-ago reported number.

Over the last 30 days, one estimate has moved higher for CarGurus while two have gone lower. As a result, the Zacks Consensus Estimate has increased 12.5%.

Current-Year Estimate Revisions

The company is expected to earn $0.49 per share for the full year, which represents a change of +36.11% from the prior-year number.

The revisions trend for the current year also appears quite promising for CarGurus, with four estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 26.36%.

Favorable Zacks Rank

The promising estimate revisions have helped CarGurus earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

While strong estimate revisions for CarGurus have attracted decent investments and pushed the stock 26.9% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.

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