What happened
CarGurus' (NASDAQ: CARG) stock beat the market by a wide margin this week. Shares were up 21% through Thursday trading, compared to a 0.1% drop in the S&P 500, according to data provided by S&P Global Market Intelligence.
That spike added to solid returns for owners of the car selling marketplace, whose stock is up 39% so far in 2023. It came as investors processed CarGurus' earnings report that showed steady profitability even as sales volumes continued to decline on its platform.
So what
CarGurus announced on Tuesday that revenue fell a brutal 46% in the selling period that ended in late March. As tough as that slump was, it met management's short-term target. It also followed soaring results in the year-ago period, when revenue jumped over 150%.
Investors chose to focus on those broader sales gains this week. Wall Street was also happy to see positive engagement metrics, including a 3% boost in average monthly users on the platform. "We have made tremendous progress in becoming the No. 1 digital destination for consumers and dealers," CEO Jason Trevisan said in a press release.
Now what
It is encouraging to see CarGurus' business generate positive earnings even after its sales fell by nearly 50%. Success on this score implies potentially strong profits once the industry works through its supply chain challenges and the pressures brought on by rising automobile loan rates.
Still, investors might want to simply keep this stock on their watch lists for now. CarGurus is likely to see an over 40% revenue drop this year, according to most Wall Street pros. And these declines will be steeper if we fall into a recession in 2023 or 2024. This potential makes the consumer discretionary stock look risky today, following a sharp rally so far this year.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CarGurus. 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.
