CarGurus Inc (CARG, Financial) recently experienced a daily gain of 4.36%, yet over the last three months, it has seen a slight decline of 1.69%. With an Earnings Per Share (EPS) of $0.59, investors are contemplating whether the stock is modestly undervalued. This article embarks on a valuation analysis to explore the true worth of CarGurus (CARG) and determine if its current market position reflects its intrinsic value.
Company Introduction
CarGurus Inc (CARG, Financial) operates as an influential online automotive marketplace, bridging the gap between buyers and sellers of new and used cars. The company's innovative approach includes a variety of marketplace listing products, providing real-time and historical data that aids in pricing analysis. With a strong presence in the United States and internationally, CarGurus generates the majority of its revenue from the U.S. market. At the core, the comparison between CarGurus' stock price of $19.16 and the GF Value of $25.22 suggests a potential undervaluation, prompting a closer examination of the company's financial health and future prospects.
Summarize GF Value
The GF Value is a unique calculation that reflects the intrinsic value of a stock. It is determined by considering historical trading multiples, an adjustment factor based on past performance, and future business estimates. CarGurus (CARG, Financial) appears modestly undervalued when assessed against this measure. With a market cap of $2.20 billion, the current price suggests that the stock could offer a higher long-term return than its business growth alone might indicate.
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Financial Strength
Investors must assess a company's financial strength before investing, as it correlates with the risk of permanent loss. CarGurus' cash-to-debt ratio of 2.18 outperforms 72.73% of the companies in the Vehicles & Parts industry, indicating a fair financial strength with a score of 7 out of 10.
Profitability and Growth
A company's profitability is a key indicator of its risk and performance potential. CarGurus has maintained profitability for 7 out of the past 10 years. With revenues of $977.90 million and an impressive operating margin, it stands strong within its industry. Furthermore, CarGurus' growth rates in revenue and EBITDA are notably higher than the industry average, suggesting a promising future.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to its capital costs. CarGurus' ROIC of 11.2 is slightly below its WACC of 11.62, indicating a narrow margin for value creation.
Conclusion
In summary, CarGurus (CARG, Financial) presents signs of being modestly undervalued. The company's solid financial condition and strong profitability, coupled with its superior growth rankings, paint a positive picture for potential investors. For a more detailed financial overview, interested parties can examine CarGurus' 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
