CarGurus stock downgraded to Market Perform by Citizens JMP

Investing.com - Citizens JMP downgraded CarGurus Inc. (NASDAQ:CARG) from Market Outperform to Market Perform on Wednesday, citing concerns about the company’s growth trajectory. According to InvestingPro data, the stock currently trades at a P/E ratio of 91.7x, suggesting a premium valuation relative to its peers.

The downgrade reflects Citizens JMP’s assessment that CarGurus is primarily driving growth through pricing or package upsells rather than expanding its dealer base, which has grown at a compounded rate of just 1% over the past three years. While revenue growth has been modest at 0.63% over the last twelve months, the company maintains impressive gross profit margins of 85.6%.

Despite acknowledging that CarGurus likely has room to continue taking price increases and noting that its international business is in early stages, Citizens JMP believes the risk/reward ratio for the stock is now balanced at 10.1x 2026E EBITDA.

The research firm pointed to potential challenges including U.S. market saturation and risks from search engine changes, particularly as AI-powered search technology advances in the marketplace.

Citizens JMP indicated it would consider becoming positive on CarGurus shares again following either a more attractive valuation or clear performance improvements in the company’s newer business initiatives.

In other recent news, CarGurus reported its first-quarter 2025 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $0.46, compared to the forecasted $0.44. The company’s revenue for the quarter reached $225 million, slightly below the anticipated $226.73 million. Despite the minor revenue miss, CarGurus experienced a 4% year-over-year increase in total revenue, with marketplace revenue growing by 13% to $212 million. The international revenue also saw a substantial 20% year-over-year growth. Non-GAAP gross margin improved by 720 basis points to 89%, indicating strong operational efficiency. In addition to financial performance, CarGurus launched an AI-powered search feature to enhance the car shopping experience, allowing users to engage in a more personalized and intuitive process. This innovation is part of CarGurus’ ongoing commitment to integrating AI and machine learning into their platform. Furthermore, the company is conducting a strategic reassessment of its CarOffer wholesale business model to optimize operational efficiency.

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