Bull of the Day: CarParts.com (PRTS)

CarParts.com (PRTS) is a Zacks Rank #1 (Strong Buy) that operates as an online provider of aftermarket auto parts and accessories. The company offers replacement parts, such as parts for the exterior of an automobile; mirror products; engine and chassis components, as well as other mechanical and electrical parts; and performance parts and accessories to individual consumers through its network of e-commerce websites and online marketplaces

The stock took off during the pandemic as the company thrived in the back half of 2020. PRTS moved from under $3 to $23, but has since fallen back under the $10 level.

With the stock trading over 65% from the 2021 highs, investors are looking for a bottom to form. A recent earnings report might have finally given the bulls the green light to get back into the stock.

More about PRTS

The company was founded in 1995 and is headquartered in Torrance, CA. It employs 1,500 people and has a market cap of $400 million.

In addition to individual consumers, CarParts.com sells auto parts to repair shops and wholesale distributors. The company also runs the websites jcwhitney.com, autopartswarehouse.com and usautoparts.com.

The stock has a Zacks Style Score of “A” in Growth, but “D” in Value. The company pays no dividend.

Q1 Earnings Beat

On May 3rd, PRTS reported a 180% EPS beat for Q1. Earnings came in at $0.04 v the -$0.06 a year ago. Revenues came in at $166 million v the $144.8 million last year. EBITDA was up to $9.4M from $3.6M last year and gross margins were up 280 basis points year over year.

This was a record-breaking sales quarter for the company, which also brought record breaking adjusted EBITDA. Management said that the company is on solid ground both operationally and financially. They commented that focusing on outstanding customer service, operational excellence, financial discipline, and innovation will be their areas of focus going forward.  

The EPS beat was the second in a row and the sixth beat out of the last eight quarters.

CarParts.com, Inc. Price and EPS Surprise

CarParts.com, Inc. Price and EPS Surprise

CarParts.com, Inc. price-eps-surprise | CarParts.com, Inc. Quote

Estimates Rising

Because of the big earnings beat, analysts are starting to take estimates higher across most time frames.

For the current quarter, we have seen numbers taken up over the last 60 days, from -$0.03 to $0.03. For next quarter, they have gone from -$0.25 to -$0.13 over that same time frame

This is a steady improvement that will continue into next year. Over the last 60 days, next year’s numbers have gone from -$0.18 to -$0.10.

Analyst commentary cited sales and margin growth as a reason to be long the stock.

Despite a tough environment due to freight/input costs, Roth Capital says it is "encouraged by the company’s ability to optimize margin dollars through an ensemble of variables". The firm has a $12 price target on the stock, which is over 50% from current levels.

The Technical Take

Before earnings, the stock tested the $6 level for the second time in 2022. The solid EPS numbers helped the stock pop over 30% off those lows. However, selling came in as the overall market continued to struggle.

But the bulls have since taken back control and the stock is trading over the 50-day MA. If the buyers can hold the $8 level, the post earnings highs of $9 should be in play rather quickly.

The next big level is the 200-day moving average, which is currently at the $11 mark.

In Summary

The current market environment is a difficult one where companies beating earnings are getting sold anyway. The key to whether a stock goes lower after they report are margins and if the current inflationary environment is eating into profitability.

For CarParts.com, the company is seeing improving margins and record sales growth. This is a nice recipe to keep investors interested in the stock during this tough environment.

If the bulls can keep the 50-day MA level, the stock should eventually grind back to those post-earnings highs.  

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

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