Monday (NASDAQ:MNDY), an analyst from B.Riley adjusted the price target for CarGurus Inc. (NASDAQ: NASDAQ:CARG) to $40.00, up from the previous $30.00, while maintaining a Buy rating on the stock. The adjustment follows CarGurus' robust third-quarter performance, which surpassed expectations, particularly in its core marketplace operations.
The company's growth momentum is expected to carry on into the fourth quarter, driven by several factors. These include significant growth in digital-lead adoption by dealers, which rose 14% quarter-over-quarter and 2.5 times year-over-year. Additionally, the increase in up-sells and add-ons during renewals, a higher proportion of longer-duration contracts, and strong international performance were noted as positive indicators.
The rising dealer count was highlighted as evidence of growing customer interest in CarGurus' offerings. The expansion of the Top Dealer Offer, which contributes to high-margin marketplace revenue, was also seen as a favorable sign for future growth prospects.
The analyst underscored the attractiveness of CarGurus' risk/reward profile, citing a valuation of 3.6 times enterprise value to adjusted EBITDA. With these factors in mind, the firm reaffirmed its Buy rating on the stock and raised the price target to reflect the positive outlook.
In other recent news, CarGurus has been the subject of an updated outlook by RBC Capital Markets, which raised its price target for the company to $42, citing strong Q3 results and margin gains. This move followed a solid third-quarter performance by CarGurus, which saw a 5% year-on-year increase in consolidated revenue to $231 million. The company's marketplace revenue also grew by 15%, reaching $204 million.
CarGurus' financial health was further demonstrated by a significant 33% rise in non-GAAP consolidated adjusted EBITDA. The company's international business, particularly in Canada, contributed to the overall growth with a 23% revenue increase. Additionally, CarGurus announced a $200 million share repurchase program, set to commence in January 2025.
Analysts from RBC Capital and the earnings call highlighted the company's successful launch of new products and its focus on enhancing product offerings, as well as improving lead quality. Despite expecting challenging results in 2025, CarGurus remains optimistic about its growth drivers and product offerings. The company anticipates a fourth-quarter revenue between $219 million and $239 million, with marketplace revenue growth expected to be between 14% and 17% year-over-year.
InvestingPro Insights
Recent data from InvestingPro aligns with the analyst's positive outlook on CarGurus Inc. (NASDAQ: CARG). The company's stock has shown impressive performance, with a 82.35% total return over the past year and a 43.72% return in the last six months. This strong momentum is reflected in the stock's current price, which stands at 91.87% of its 52-week high.
InvestingPro Tips highlight that CarGurus' net income is expected to grow this year, and analysts predict the company will be profitable in 2024. This projection supports the B.Riley analyst's optimistic stance on the company's future performance. Additionally, CarGurus holds more cash than debt on its balance sheet, indicating a strong financial position that could support its growth initiatives.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for CarGurus, providing deeper insights into the company's financial health and market position. These tips can be particularly valuable given the stock's recent performance and the positive analyst outlook.
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