We came across a bull thesis on CarGurus, Inc. (CARG) on ValueInvestorsClub by Maribel. VIC is our preferred site because the ideas there are generally posted by aspiring analysts who try to find holes in their own story. We find the ideas presented on the site well thought out and worthy of a serious look. Click here for the full article. Below we summarized the CARG bull thesis. CARG shares were trading at $32 when this thesis was written.
CarGurus, Inc. is a global automotive research and shopping website that assists buyers and sellers in comparing local listings for new and used cars, and connecting one another. The company uses proprietary technology, search algorithms, and data analytics. The Company’s marketplace empowers users with unbiased third-party validation on pricing and dealer reputation as well as other information that aids them in finding Great Deals from Great Dealers. In addition to North America, the company operates online in the United Kingdom and Germany. The Company’s products include Consumer Marketplace, Dealer Marketplace, Dealer Dashboard, Dealer Advertising and Customer Acquisition Products, Auto Manufacturer and Other Advertiser Products.
The analyst strongly believes CARG is an attractive investment opportunity in a business that is constantly gaining market share in an increasingly growing industry with bright long-term prospects.
CARG has a solid platform of over 30,000 paying dealers, 46.4 million monthly site users, and 5.5 million strong inventory selection listings worldwide. Its market share in the US (70%), for the past five years, has been growing at the rate of 17% CAGR and a whopping 188% in the international markets. CARG has clocked a 22% 4-year average ROE. Since the acquisition of CarOffer, the company has seen the gross sales volumes over its platform multiply almost ten-fold in just two years. CARG estimates its US and Canada revenue numbers to flirt with $7-8 billion annually.
The company’s transparency, strong relevant search results, and subscriber-friendly pricing strategy has given it a distinction that none of its competitions can replicate. Its unique business model involves growing the number of dealers onto its platform thereby providing greater value-added options to the consumer, which in turn helps dealers grow their ROI, and attracts yet more dealers to join the bandwagon. And the process becomes self-fulfilling prophecy.
As CARG continues to register higher growth via making a foray into the automotive insurance business, further expanding its international operations, and strong digital peer-to-peer marketplace, the analyst is getting more confident about the company’s prospects. Since the newly acquired CarOffer’s intrinsic value is subject to model assumptions, she thinks CARG is undervalued by a wide range of 20-80%.
See also 12 countries that produce the most cars.