Carvana Co. (CVNA) and Cars.com, LLC (CARS) are two of the fastest growing used car dealers in the United States. CVNA’s platform allows customers to research a vehicle, inspect it using the company’s 360-degree vehicle imaging technology, purchase the vehicle and schedule delivery or pick-up from their desktop or mobile devices. CARS’ platform, in contrast, connects car shoppers with sellers and original equipment manufacturers (OEMs).
With more vehicle dealers rapidly adopting digital sales platforms in response to rising consumer demand, we think digital auto retailers should see significant improvement in their revenues in the coming months. Also, since most people are avoiding public transportation or ride-hailing services amid rising COVID-19 infections, demand for personal vehicles should continue climbing, which should benefit CVNA and CARS.
In terms of the past nine-month’s stock price performance, CVNA is the clear winner with 456.7% gains versus TRGP’s 217.7% returns. But which of these stocks is a better pick now? Let us find out.
CVNA recently introduced “as-soon-as-next-day” vehicle delivery in Pine Bluff, which allows customers to review more than 20,000 vehicles on Carvana.com or trade their current vehicle to CVNA using this new delivery schedule. The launch should help the company expand throughout the state by offering ease, convenience, and transparency in delivery to its customers.
In November, the company opened its flagship Car Vending Machine in Atlanta. It also recently opened its 26th vending machine near Detroit, Michigan. This innovative sales approach should help the company to remove traditional dealership infrastructure and replace it with technology and exceptional customer service and, thereby, stand out in the market.
CARS announced end-of-year car deals with up to 19% discount on select new vehicles in December. And in October, the company announced the closing of its previously announced offering of $400 million of senior unsecured notes due 2028. CARS used the proceeds of the offering to repay outstanding debt fees associated with the other transactions.
Recent Financial Results
In the third quarter ended September 30, 2020, CVNA’s revenue surged 41% year-over-year to $1.54 billion, due primarily to an increase in its wholesale and retail vehicle sales. The company’s gross profit has grown 90% from its year-ago value to $261 million.
CVNA’s retail unit sales increased 39% from the prior-year quarter to 64,414, while acquired vehicles from customers rose 128% year-over-year to 73,400 over this period. The company reported an EBITDA margin of 1.4%, representing an improvement from a loss of 5.5%.
CARS’s revenue has declined 5% year-over-year to $144.40 million for the third quarter ended September 30, 2020. The company’s average monthly unique visitors rose 10% from the year-ago value to 25.3 million, while dealer customers grew to 18,130 from 18,033 over this period. Its adjusted EBITDA grew 7% from the prior-year quarter to $49 million.
Here CVNA is in an advantageous position.
Past and Expected Financial Performance
CVNA’s revenue and total assets have grown at a CAGR of 90.8% and 76.7%, respectively, over the past 3 years.
Analysts expect the company’s revenue to increase 47% in the current year. CVNA’s EPS is expected to grow 44.1% in the current year.
In comparison , CARS’s revenue and total assets have decreased at a CAGR of 4.7% and 25%, respectively, over the past 3 years.
Analysts expect the company’s revenue to increase 9.6% in the current year. CARS’s EPS is expected to grow 17.3% in the current year.
CVNA has an edge over CARS here as well.
CVNA’s trailing-12-month revenue is more than eight times CARS’. But CARS is more profitable, with a gross profit margin of 71.5% versus CVNA’s 14.3%.
In terms of trailing-12-month Price/Sales, CVNA is currently trading at 3.11x, 120.6% more expensive than CARS, which is currently trading at 1.41x. Moreover, its trailing-12-month EV/Sales of 4.05x is 65.3% higher than AM’s 2.45x.
Both CVNA and CARS are rated “Buy” in our proprietary POWR Ratings system. Here are how the four components of overall POWR Rating are graded for CVNA and CARS:
CVNA has an “A” for Trade Grade and Industry Rank, a “B” for Buy & Hold Grade, and a “C” for Peer Grade. In the 67-stock Internet industry, it is ranked #18.
CARS has an “A” for Industry Rank, a “B” for Trade Grade and Buy & Hold Grade, and a “C” for Peer Grade. It is ranked #34 of 67 stocks in the same industry.
Both CVNA and CARS are good investment bets considering their market dominance and continued expansion. However, CVNA appears to be a better buy based on the factors discussed here. Its revenue and earnings growth expectations should help it perform better than CARS.
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CVNA shares were trading at $255.27 per share on Wednesday afternoon, down $0.31 (-0.12%). Year-to-date, CVNA has gained 6.57%, versus a 0.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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