Automobile and auto parts sales took a major hit during the worst of the COVID-19 pandemic. But the demand for used cars and aftermarket auto parts and accessories increased later, with people moving to get their old cars fixed or buy used cars to avoid using public transportation. As the economy has started to recover, the overall industry has been witnessing a decent growth. While it is still grappling with a semiconductor chip shortage, it’s future growth looks hopeful with government support for the electrification of vehicles and proposed investment to address the semiconductor shortage.

According to Grand View Research, the global automotive aftermarket is expected to expand at a 3.8% CAGR from 2021 – 2028, to reach $529.25 billion. Investors’ increasing interest in automotive stocks is evident in First Trust NASDAQ Global Auto Index Fund’s (CARZ) 98.5% returns over the past year versus the tech-heavy Nasdaq’s 45.9% returns.

However, not all auto stocks are well positioned to capitalize on the industry tailwinds. Carvana Co. (CVNA) and CarParts.com, Inc. (PRTS) currently look overvalued considering the bleak growth prospects. So, we think it wise to avoid these stocks now.

Click here to check out our Automotive Industry Report for 2021

Carvana Co. (CVNA)

In the United States, CVNA, with its subsidiaries, operates as an e-commerce platform for buying and selling used cars. The company’s platform helps potential customers in making a purchase decision through desktop and mobile devices. It also offers 360-degree vehicle imaging technology and financing and warranty coverage.

On May 19, CVNA announced its expansion in the Pacific Northwest, offering as-soon-as-next-day touchless home delivery to Washington residents. However, this expansion is expected to take a toll on its already weak financials in the near term.

CVNA’s net loss for the quarter came in at $82 million compared to a $184 million net loss in the year-ago period. Also, its loss per share was $0.46 compared to a $1.19 loss per share in the prior-year period.

In terms of forward P/B, CVNA’s 90.05x is 2,390.1% higher than the 3.62x industry average. In terms of forward EV/Sales, its 2.15x is 36.7% higher than the 1.57x industry average. Analysts expect its EPS to remain negative in  2021 and 2022. The stock lost 26.1% over the past three months to close yesterday’s trading session at $228.15.

CVNA’s poor prospects are apparent in its POWR Ratings. The company has an overall F rating, which translates to Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has an F grade for Quality, and a D grade for Stability and Value. Click here to see the additional POWR ratings for CVNA (Momentum, Sentiment and Growth). It is ranked #66 of 71 stocks in the D-rated Internet industry.

CarParts.com, Inc. (PRTS)

PRTS is an online provider of aftermarket auto parts and accessories in the United States and Philippines. Its websites include www.carparts.com, www.jcwhitney.com, www.autopartswarehouse.com and www.usautoparts.com. The company offers replacement parts, mirror products, engine and chassis components.

PRTS announced the launch of a national ad campaign on April 26, 2021. The campaign features Daytona 500 champion Michael McDowell. However, it’s uncertain if this new campaign will have a positive impact on the company’s financials in the near-term.

PRTS’ loss from operations increased 607.6% year-over-year to $2.50 million for the first quarter ended April 3. Its net loss grew 178.3% year-over-year to $2.72 million, while its comprehensive loss increased 147.7% year-over-year to $2.67 million. The company’s loss per share increased 100% year-over-year to $0.06.

In terms of forward EV/EBITDA, PRTS’ 67.30x is 467.1% higher than the 11.87x industry average. For its fiscal year 2021, analysts expect PRTS’ EPS to decrease 375% year-over-year to $0.19. The company’s EPS is expected to remain negative in fiscal 2021 and fiscal 2022. The stock has lost 22.8% over the past three months to close yesterday’s trading session at $15.05.

It’s no surprise that PRTS has an overall D rating, which equates to Sell in our POWR Ratings system. The stock has an F grade for Growth, and a D grade for Value, Stability and Sentiment.

Click here to see PRTS’ ratings for Quality and Momentum. PRTS is ranked #59 of 66 stocks in the Auto Parts industry.

Click here to check out our Automotive Industry Report for 2021

CVNA shares were trading at $240.65 per share on Thursday afternoon, up $12.50 (+5.48%). Year-to-date, CVNA has gained 0.46%, versus a 11.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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