Carvana, Vroom Rally On Goldman Sachs Upgrade: The Bull Case For Auto E-Commerce

Auto stocks have been among the most volatile in the market in 2020. One Wall Street analyst upgraded online auto retailers Vroom Inc VRM and Carvana Co CVNA on Tuesday following sharp September pullbacks.

The Vroom, Carvana Analyst: Goldman Sachs analyst Daniel Powell upgraded Vroom from Hold to Buy and raised the price target from $52 to $60.

Powell also upgraded Carvana from Hold to Buy and raised the price target from $178 to $205.

The Vroom, Carvana Takeaways: Online auto sales will likely be a long-term growth industry, and that growth has been accelerated by the pandemic, Powell said in a Tuesday upgrade note.

Both Carvana and Vroom are among the leading national players in a highly fragmented market, and the analyst said both companies are in a position to gain market share from the more than 40,000 dealers that sell less than 500 used cars per year.

Investors should see the September sell-off as a long-term buying opportunity, he said. 

“With shares down meaningfully from 1-Sept (CVNA -27%, VRM -37% as of 18-Sept), Manheim reporting retail and wholesale supply loosening, indications of inventory building, and a re-acceleration in app downloads, we believe the current pullback warrants stepping in with risk/reward skewed meaningfully to the upside for both of these secular winners.” 

Carvana’s falling share price has coincided with a reacceleration in app downloads, Powell said. 

Vroom’s improving guidance and inventory levels have also trended in the opposite direction of its falling share price. Vroom grew its total number of listed vehicles from 1,430 in April to 9,885 in August.

VRM, CVNA Price Action: Vroom shares were trading 9.69% higher to $50.93 at the time of publication Tuesday, while Carvana shares were surging 30.3% to $226.29. 

Benzinga’s Take: Carvana shares traded higher by more than 18% in Tuesday morning’s premarket session and were rallying in the regular session, so investors looking to buy the dip Goldman referenced may not actually have the chance.

If the future for online auto sales is as bright as Powell says, long-term investors should see plenty of upside no matter when they buy into the stock. 

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