The used car market is a huge industry, boasting annual sales over $800 billion, and amounting to roughly 10% of total U.S. retail sales. That said, there are few recognized industry leaders as the top 100 dealers, combined, take less than 9% share of the market.
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William Blair analyst Sharon Zackfia says the industry is also somewhat stuck behind the times, with a heavy reliance on “undifferentiated, limited inventory selections and smoke-and-mirror, high-pressure selling practices.”
However, this presents an opportunity for companies who can stand out from the pack. Ones such as CarMax and Carvana, have already done so and have reaped the rewards.
Zackfia thinks CarLotz (LOTZ) and its “asset-light consignment-to-retail model,” is well-positioned to also take a piece of the action.
“With a differentiated sourcing model— including roughly 60% of inventory consigned from corporations—CarLotz provides commercial sellers direct access to retail customers at a favorable profit profile relative to wholesale auctions,” the 5-star analyst said. “CarLotz’s unique ‘retail remarketing’ model, combined with its customer-friendly buying experience (no-haggle pricing and peace of mind afforded by a 3-day/500-mile exchange policy), results in the best deals for both sellers and buyers.”
It’s a win-win for both sides, as Zackfia notes, and saves customers, on average $1000, and at the same time generates $1000 of profit for car sellers, when compared to wholesale auctions.
CarLotz’ inventory risk is “limited,” Zackfia adds, due to the fact 75% of vehicles are consigned. What’s more, the company’s success at generating higher profits “within a hassle-free, low-friction framework” means its corporate relationships will likely prove to be “sticky over the long term.”
CarLotz only recently went public and its post-SPAC balance sheet shows $320 million in cash and no debt. Management has said it intends to spend $160 million over the next couple of years “to support rapid growth.” The money will go toward expanding its footprint across the US and ramping up sales. By 2023, Zackfia expects the company to boast over 40 hubs, up from the current 10.
The expanded footprint is set to significantly boost the top-line.
Zackfia expects CarLotz to grow its vehicle sales from 6,200 in 2020 to 76,000 by 2023, which will amount to revenue of roughly $1.5 billion and a 136% revenue CAGR (compound annual growth rate). This will turn CarLotz into “the fastest-growing company among its publicly traded peer group.”
Accordingly, Zackfia rates CarLotz an Outperform (i.e., Buy) but has no fixed price target in mind. (To watch Zackfia’s track record, click here)
Some companies fly under Wall Street’s radar and CarLotz appears to be one right now; Zackfia’s is currently the lone published review. (See LOTZ stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
