As the broader market takes a breather from its post-recovery surge, there’s a treasure hunt underway in lesser-known sectors and among smaller-cap companies. While many investors have their eyes locked on mega-cap tech and blue-chip stocks, there are quality businesses quietly trading at a discount. And in the world of value investing, obscurity often spells opportunity.
Today’s pick may not be in the spotlight, but it’s primed for impressive growth when its upcoming catalysts kick in.
CarGurus, the online automotive marketplace linking buyers and sellers, is our focus. While it did face a 70% decline from its peak last year, the stock has made a 35% comeback since its November lows. True, the used vehicle market has its uncertainties, but we believe CarGurus is playing the long game.
In its latest quarter, CarGurus exceeded expectations. Despite a 53% YoY drop in revenue to $239.7 million, the company posted strong EBITDA of $45 million. Its core listings marketplace grew by 4% YoY, and even though the newer wholesale segment faced challenges, operational improvements brought profitability back. We’ll dive into revenue growth in a moment.
Crucially, CarGurus is making strides in its digital retail capabilities. Adoption of its Digital Deal offering grew by 29% sequentially, streamlining dealers’ sales processes. The company is rapidly constructing an end-to-end transaction platform fueled by AI and advanced online tools, benefiting both dealers and consumers.
Analysts foresee substantial growth in CarGurus’ future, with revenue projected to surge at a 22% CAGR from 2024 to 2032, alongside a more than quadrupling of earnings. Despite this robust growth, it maintains a reasonable forward price-earnings ratio of 16x. This sets the stage for a consensus price target of $23.80, implying a 35% upside potential achievable in one year.
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