7 Most Undervalued Auto Stocks To Buy According To Analysts

1. Cars.com Inc. (NYSE:CARS)

Number of Hedge Fund Holders: 17

Forward PE Ratio: 8.66

Average Price Target Upside: 33.76%

Cars.com Inc. (NYSE:CARS) is a U.S.-based automotive classified site and one of the largest companies in its industry. It streamlines car buying and selling with AI-powered tools that cover all stages, from pretail to post-sale. According to the company, it is visited by over 25 million in-market consumers monthly.

The company’s platform includes four key brands. Cars.com focuses on automotive marketplaces and dealer reputation. Dealer Inspire offers retail technology and marketing services. Accu-Trade provides trade-in and appraisal tools. Cars Commerce Media Network delivers exclusive media solutions.

In the second quarter, Cars (NYSE:CARS) achieved 6% revenue growth year-over-year, driven by strong performance in the OEM sector, which rose 28%. Dealer revenue also increased due to a rise in dealership numbers, while adjusted EBITDA grew 10%.

Free cash flow reached $56 million, marking a three-year high. Despite challenges like the CDK system disruption affecting dealer operations and sales momentum, the company focused on supporting dealers and aims to rebuild sales in the third quarter, especially for products like Accu-Trade.

The CDK disruption refers to a ransomware attack on CDK Global that shut down key systems at nearly 15,000 dealerships in North America. It resulted in over $1 billion in losses for car dealerships.

The company is expected to post its Q3 results between October 30 and November 4. In the quarter, it expects revenue of $178 million to $181 million, with a 2% to 4% year-over-year growth. The CDK disruption will impact third-quarter performance, but the company remains focused on growing product adoption and expanding its OEM partnerships. Full-year revenue growth is projected between 4.5% and 5.5%, with an adjusted EBITDA margin of 28% to 30%.

On August 23, TipRanks reported that Barrington analyst Gary Prestopino maintained a Buy rating for Cars (NYSE:CARS) with a $25 price target. His optimistic outlook is based on the company’s solid Q2 performance, which showed a 6% revenue increase and a 10.5% rise in adjusted EBITDA, despite challenges from the CDK cyber incident.

The company also reported a record free cash flow and strong dealer customer growth, with revenue from dealer services up 4.2%. Additionally, the AccuTrade product demonstrated strong retention and accuracy, supported by OEM endorsements, which solidified Cars.com’s competitive position and long-term prospects.

With an average price target of 33.76% as of October 4, Cars (NYSE:CARS) tops our list of most undervalued auto stocks to buy according to analysts.

While we acknowledge the potential of Cars.com Inc. (NYSE:CARS) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CARS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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