On Thursday, Needham, a research firm, increased its price target for CarGurus Inc. (NASDAQ: NASDAQ:CARG) shares, setting the new target at $45, up from the previous $39, while reiterating a Buy rating for the company's stock.
According to InvestingPro data, the stock has delivered an impressive 63% return over the past year and is currently trading near its 52-week high of $39.10. The adjustment followed a recent event where Elisa Palazzo, the Chief Financial Officer of CarGurus, spoke at the 27th annual Needham Growth Conference.
During the conference, the discussion with Palazzo reinforced the analyst's positive view of CarGurus. The company has been successful in gaining the attention and spending of dealer customers compared to its competitors in the used auto marketplace, maintaining an impressive 80.76% gross profit margin.
According to Needham, CarGurus has untapped potential due to its superior return on investments (ROIs). The research firm suggests that CarGurus is not fully capitalizing on its competitive advantages and stands to benefit as dealers increasingly rely on data to drive their businesses. InvestingPro analysis reveals the company maintains a strong financial health score, with liquid assets exceeding short-term obligations.
Regarding CarGurus' wholesale operations, the assessment by Needham indicates that expectations for CarOffer, a part of CarGurus' business, are set low for the near term. Despite this, the optimism surrounding CarGurus' performance and its subscription revenue model has prompted Needham to apply a higher multiple to their adjusted EBITDA forecast for the fiscal year 2026. The new price target is based on a 15x multiple of the projected adjusted EBITDA, an increase from the 12.5x multiple used before.
The analyst's commentary highlighted the company's industry leadership and the growing momentum in the used auto sector as key factors behind the decision to raise the price target. CarGurus' strategic positioning and execution in the market were cited as reasons for the positive outlook and the subsequent increase in the price target.
The stock's price target change reflects Needham's confidence in CarGurus' ability to continue leading the industry and expanding its market share. The firm's analysis points to a strong future for CarGurus, particularly as it continues to leverage data-driven strategies to enhance its offerings and customer engagement.
InvestingPro subscribers can access 15 additional ProTips and a comprehensive research report that provides deep insights into CarGurus' valuation, growth prospects, and competitive positioning in the market.
In other recent news, CarGurus has been the focus of analyst attention following a strong third quarter performance.
B.Riley and RBC Capital Markets both adjusted their price targets for the company upwards, to $40 and $42 respectively, citing robust Q3 results and promising growth indicators. CarGurus reported a 5% year-on-year increase in consolidated revenue to $231 million, with marketplace revenue growing by 15% to reach $204 million. Additionally, the company's non-GAAP consolidated adjusted EBITDA rose by a substantial 33%.
Furthermore, the company's international business, particularly in Canada, contributed to the overall growth with a 23% revenue increase. CarGurus also announced a $200 million share repurchase program, set to commence in January 2025. Despite anticipating challenging results in 2025, CarGurus remains optimistic about its growth drivers and product offerings, anticipating a fourth-quarter revenue between $219 million and $239 million, with marketplace revenue growth expected to be between 14% and 17% year-over-year.
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