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CarGurus, Inc. Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Predictions

Simply Wall St

A week ago, CarGurus, Inc. (NASDAQ:CARG) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 5.1% to hit US$158m. CarGurus also reported a statutory profit of US$0.11, which was an impressive 389% above what the analysts had forecast. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

Check out our latest analysis for CarGurus

NasdaqGS:CARG Past and Future Earnings May 10th 2020

Taking into account the latest results, the current consensus, from the twelve analysts covering CarGurus, is for revenues of US$500.4m in 2020, which would reflect a not inconsiderable 18% reduction in CarGurus' sales over the past 12 months. Statutory earnings per share are forecast to plunge 59% to US$0.15 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$512.5m and earnings per share (EPS) of US$0.052 in 2020. Although the analysts have lowered their sales forecasts, they've also made a massive increase in their earnings per share estimates, which implies there's been something of an uptick in sentiment following the latest results.

There's been no real change to the average price target of US$32.00, with the lower revenue and higher earnings forecasts not expected to meaningfully impact the company's valuation over a longer timeframe. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on CarGurus, with the most bullish analyst valuing it at US$40.00 and the most bearish at US$25.00 per share. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 18%, a significant reduction from annual growth of 32% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 16% annually for the foreseeable future. It's pretty clear that CarGurus' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards CarGurus following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. With that said, earnings are more important to the long-term value of the business. The consensus price target held steady at US$32.00, with the latest estimates not enough to have an impact on their price targets.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for CarGurus going out to 2024, and you can see them free on our platform here..

Don't forget that there may still be risks. For instance, we've identified 2 warning signs for CarGurus that you should be aware of.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.