CarGurus Earns A "Great Deal" Rating

As for the dealer wholesale auction market, CarGurus in January purchased a 51% stake in CarOffer, a Texas-based private company with an online wholesale auction website that allows dealers to inspect, bid, transact, and transport used vehicles. CarOffer charges the dealer a flat fee of $275 per vehicle plus acquisition costs.

Since its launch in August 2019, CarOffer has grown rapidly, with 2,000 dealers processing $350 million in merchandise and service transactions during the third quarter of 2020. CarGurus paid $140 million for its 51% stake, half in cash and half in stock, and has options through 2024 to purchase the remaining 49%.

Analysts are projecting CarGurus can grow earnings 21% per year. Five years of this growth and our selected high P/E of 35 could generate a stock price as high as 61. We use a low price of 14, the product of calendar year 2020 EPS of $0.68 and the average low P/E of 21.

The upside/downside ratio is 3.5 to 1. CarGurus is well capitalized with cash and investments of $290 million on December 31, 2020 and no debt other than operating leases.

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