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3 reasons why Carparts.com is on the right track

Shares of Carparts.com (NASDAQ:PRTS) have soared this week, jumping 27.2% on Wednesday after the auto parts e-commerce company released a strong first-quarter earnings report. The company said revenue rose 15% to $166.1 million, beating estimates of $162.1 million. Over a two-year window, revenue was up 80% as sales jumped in the quarter a year ago when the pandemic was at its peak.

Net results were also strong, with records adjusted EBITDA $9.4 million, compared to $3.6 million a year ago, and GAAP earnings per share of $0.04, beating estimates of a loss of $0.02 per share.

Like other e-commerce stocks, Carparts.com surged during the pandemic before falling sharply from its peak early last year. However, the latest set of results and the rebound in the stock should give investors confidence in the stock as the tailwinds to the pandemic fade. Here are three signs that Carparts.com stock looks like a winner.

Image source: Getty Images.

1. It bucks the trend of e-commerce

Almost all others ecommerce stock whose reported earnings this season plummeted after its results were released. Including Amazon (NASDAQ: AMZN), Shopify (NYSE: SHOP), Wayfair (NYSE:W) Etsy (NASDAQ: ETSY)and eBay (NASDAQ:EBAY). The sector is experiencing a painful hangover following skyrocketing growth during the pandemic, and investors were unprepared for the downturn.

Not only was Carparts.com the only stock in this group to gain on earnings, but its revenue growth also exceeded that of all members of the group except Shopify, whose gross merchandise volume increased by 16%, essentially equal to Carparts.com’s high of 15%. -online growth. First-party sales on Amazon and gross merchandise sales on Etsy actually declined, and all key growth metrics declined for Wayfair and eBay, showing how much comparisons to the prior year quarter are difficult in the e-commerce sector.

The fact that Carparts.com has been able to outperform these peers is credited to the company’s ability to retain customers and its growth prospects as it adds new warehouses to meet demand. Management also sees auto parts as resilient to inflationary and recessionary pressures, giving it an edge over other e-commerce companies that sell more discretionary items.

2. The company keeps its promises

It’s no coincidence that Carparts.com just delivered record EBITDA in the quarter and beat analysts’ estimates for net income. New CEO David Meniane has renewed the company’s focus on financial discipline, perhaps in light of the recent stock plunge, and those efforts are already bearing fruit. Free cash flow for the quarter was also positive at $1.5 million.

Achieving this type of improved performance in an environment of high inflation and significant supply chain constraints shows the company’s ability to adapt its business model and pass on price increases when needed. justified. Management also noted that it was carrying approximately $40 million more in inventory than it normally would at the current revenue level due to shipping delays, meaning its cash flow would be even greater. in a normal supply chain environment.

Over the long term, the company is aiming for adjusted EBITDA margins of 8% to 10%, and it has already made significant progress towards this goal, with its EBITDA margin reaching 5.7% in the first quarter.

3. Stock still looks cheap

Carparts.com is targeting long-term annual revenue growth of 20% to 25%, but the stock trades at a price-to-sales ratio of just 0.8, which is lower than all of the stocks above, at the moment. except for Wayfair, whose shares have plunged as it has experienced four consecutive quarters of declining revenue. Based on current Q1 EBITDA, Carparts.com stock is currently valued at just 12.4x forward EBITDA, which looks very cheap if it can achieve its growth and profitability targets. long-term.

The market seems skeptical about Carparts.com’s ability to maintain momentum in the pandemic era, but the company doesn’t plan to slow down. It plans to open a new distribution center in Jacksonville, Fla., at the end of the second quarter and will increase inventory there for the rest of the year. With the opening of Jacksonville, the company expects to be able to serve 98% of its customers with two-day delivery and 55% with one-day delivery. In the long term, it aims to reach 80% of the country with one-day delivery. In addition, Carparts.com is developing a “Do it for me” mobile mechanic service, where customers can order the parts they need and find mechanics to do the job at the same time. This would greatly expand its market from just DIY customers to anyone who owns a car, and it could disrupt the auto parts industry. The company hopes to launch the service later this year.

With a renewed focus on financial discipline, steady growth and a recession proof product category, Carparts.com looks well positioned to continue to bounce back from here.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jeremy Bowman holds positions at Amazon, CarParts.com, Inc., Etsy and Shopify. The Motley Fool holds positions and recommends Amazon, Etsy and Shopify. The Motley Fool recommends Wayfair and eBay and recommends the following options: Long Calls $1140 in January 2023 on Shopify and Short Calls $1160 in January 2023 on Shopify. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.