CarGurus Goes in Reverse but Some Analysts See Path to Margin Improvement

CarGurus falls sharply after issuing weak 2020 guidance.
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CarGurus (CARG) - Get Report dropped 25% to $25.75 Friday after the online auto retailer was the subject of numerous bearish analysts' takes following weak 2020 guidance.

But analysts weren't too hard on the company, despite the investor reaction. 

Shares of the Cambridge, Massachusetts-based company weere downgraded to neutral from buy by analysts at BTIG, who are concerned about the company’s 2020 revenue guidance between $664 million and $776 million. That suggests growth between 12% and 14% when Wall Street was looking for 20.5% growth.

The soft guidance, according to BTIG, is due to the company’s decision to reduce ad load to improve user experience and a more thoughtful approach to raising unit pricing.

Aalysts at Consumer Edge also called the company’s guidance disappointing but the firm maintained its overweight rating and $40 price target.

Analysts at Benchmark lowered the stock's price target to $42 from $51, though suggested investors buy into the stock’s weakness as there is still a clear path for margin improvement.

The company reported fourth-quarter net income of $13.2 million, or 17 cents a share, up from 12 cents a year earlier, on revenue that rose to $158.2 million from $126.1 million. Analysts were expecting earnings of 13 cents a share on revenue of $154.6 million.

“Our U.S. marketplace saw continued traffic and lead growth in the fourth quarter, and for the full-year 2019 we generated over 65 million connections and over 38 million leads, supporting what we believe is industry-leading ROI for our paying dealers,” said CEO Langley Steinert in a statement.