Stock of the Week: This Company Could Drive In 100% Profits… in Less Than a Year

|December 2, 2023

One of the things I learned early on is that when it comes to investing, there are a lot of narratives.

There are a lot of stories, a lot of people with their own angles and agendas…

But the data is what you want to focus on. And that’s what led me to this week’s Stock of the Week.

It’s an online auto marketplace that uses proprietary technology and data analytics to simplify the car purchasing process.

While the stock has been on the road to nowhere for a while… it’s now ready to shift into high gear.

And if it just gets back to its 2022 highs… that would be a double from where it is today.

Get all the details on the stock – including its ticker – in my latest video.

Click on the image below to watch it.

Transcript

Hello, Manward family, and welcome to another exciting Stock of the Week.

What have I got for you this week? Well, it’s automotive, but it’s not Tesla. Don’t worry. There are other games in town, as it were.

As you know, I tend to look at the numbers. And why is that? Well, one of the things that being in the hedge fund industry has taught me is that there are a lot of narratives out there. There are a lot of stories, people with angles and agendas and all the rest of it… but the data is what you want to focus on. I’m not saying the data never lies, but the data will often surprise.

And one of the things that I liked about this week’s Stock of the Week is the data.

So let’s have a look at CarGurus.

It’s a multinational online automotive platform for buying and selling vehicles. The company uses proprietary technologies – it owns its own technology, that’s good – and search algorithms and data analytics to make the buying process competitive and the experience easier. That’s all fine.

It’s listed on the Nasdaq… and, of course, the Nasdaq’s been ripping along this year.

It’s got two geographical segments, namely the United States – that’s the major revenue source – and, of course, international, which is a minor one, obviously. Earnings are forecast, from what I’ve been looking at, to continue growing. So that’s good news.

Let’s just deep dive into some of those numbers, shall we?

Okay, first thing… On my Growth-Value-Income algorithm, my proprietary algorithm for valuing companies, it comes out as a 7. Now, remember, this looks at and weighs the valuation, share price to profitability, revenue growth, dividend growth, dividend yields and so on. And that’s a 7. Anything with a 7 or higher meets my minimum criteria.

So does the forecast P/E. The share price is at a multiple of 16.6 times forecast profits. It’s not expensive. It’s not cheap, but it’s not expensive by any means. So that’s good.

This is what caught my eye… CROCI, cash return on capital invested, which you all know is a favorite of mine, was developed by Deutsche Bank and is used by Goldman Sachs Wealth Management. (Click here to see why it’s so important.) This is definitely in the top quartile, the top 25% of companies by cash return on capital invested. And Goldman Sachs data analytics groups say that that means the company should do rather well. So it’s generating a lot of cash for the capital invested, and it should because it’s a software company essentially.

And the price hasn’t been doing as well as it should or could. And I think that lagging nature will get a bit of a boost, and the price should then react and move upward and do better in the coming months.

Okay, that’s the way I see it with this one.

Volatility is slightly above 20%. I’d rather it was below, but it’s only a little bit above. So it’s not too bad.

In terms of the stock price, as I say, it could have been doing better. Having said all of that, it’s moved up from $12-ish at the start of the year… $12, $13 at the start of the year… to $19 now. But I think it could and should get back up to the levels that it had seen in 2020 and had seen in 2022, which is the $40 mark, which would mean a 100% return.

Can that happen in the next 12 months? That might be a bit ambitious, but that’s certainly the direction of travel that I am looking at.

In terms of a discounted cash flow valuation, it’s more than 55% undervalued.

So a lot of positives for this company. As you know if you follow GVI Investor, I look at stocks in a lot of detail. This is just the “tip of the iceberg,” to give you a taster of some of the kinds of things we look at.

I hope you found it instructive and entertaining and informative. That’s my goal.

Thank you all very much.