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On Friday, JPMorgan analysts downgraded TrueCar (NASDAQ:TRUE) shares from Overweight to Neutral, citing a disappointing quarter and uncertain recovery in growth and profitability. The downgrade comes at a time when the benefits of increasing inventory of new vehicles are beginning to wane. The stock has fallen over 20% in the past week and is currently trading near its 52-week low of $2.50. According to InvestingPro data, TrueCar’s shares have declined more than 31% over the past year, with technical indicators suggesting the stock is currently in oversold territory.
TrueCar, known for its online car shopping platform, has recently been focusing on new products such as TrueCar Military (TCMS), original equipment manufacturer (OEM) advertising, and data monetization efforts. These initiatives, along with the integration of TrueCar Plus (TC+) into Dealer Management Systems (DMS) platforms, are seen as positive steps. While the company maintains impressive gross profit margins of 85% and has achieved revenue growth of 11% in the last twelve months, JPMorgan expressed concerns about TrueCar’s ability to demonstrate the effectiveness of its strategies and the return on its upcoming investments in sales and marketing.
The analysts noted that while TrueCar’s valuation seems reasonable, with approximately 55% of its market capitalization in cash offering some downside protection, the diminishing support from vehicle inventories and the lack of clear signs of a sustained uptick in revenue and profits prompted the rating change. InvestingPro analysis suggests the stock is currently undervalued, with a strong balance sheet showing more cash than debt and a healthy current ratio of 4.1. Additionally, they did not dismiss the possibility of TrueCar forming partnerships or combining with other companies in the automotive ecosystem in the future. For deeper insights into TrueCar’s valuation and financial health, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
JPMorgan also revised its financial forecasts for TrueCar, setting the fiscal year 2025 EBITDA (earnings before interest, taxes, depreciation, and amortization) estimate to break even, a reduction from the previous estimate of $15 million. For fiscal year 2026, the EBITDA estimate was adjusted to $25 million, down from the earlier projection of $35 million. The company’s current EBITDA stands at -$24.8 million, while analysts maintain a consensus hold rating with price targets ranging from $3.25 to $5.00. Due to these significantly lower estimates, JPMorgan withdrew its price target for TrueCar shares.
In other recent news, TrueCar has announced several significant developments that are of interest to investors. The company reported its fiscal year-end financial results, highlighting a revenue shortfall in the fourth quarter of 2024, which was approximately 2.3% below consensus estimates. This revenue dip was largely due to the transition of OEM revenue following the loss of American Express (NYSE:AXP) as an affinity partner. Despite this, TrueCar managed to achieve a positive free cash flow of $4 million for the quarter. Analyst firm DA Davidson responded to these results by lowering TrueCar’s stock price target to $3.25, maintaining a Neutral rating, reflecting a cautious outlook on the company’s potential for recovery.
BTIG also adjusted its price target for TrueCar, reducing it to $4.00 from $4.50, while retaining a Buy rating on the stock. BTIG’s analysis pointed to TrueCar’s optimistic outlook for future revenue growth, particularly with new partnerships and an expansion in dealer sales and service headcount. The firm believes these efforts could support the company’s growth in the latter half of 2025. TrueCar’s management is confident that these changes will offset the revenue loss from the American Express transition by the second quarter of 2025. Additionally, TrueCar aims for over 20% revenue growth throughout 2025, aligning with Street forecasts, suggesting an expected stronger performance later in the year.
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