BofA Says Vroom's Growth Prospects Are Already Priced In

The spike in Vroom Inc’s VRM stock from an IPO price of $22 less than a month back suggests that the company’s strong near-term potential is already priced in, according to BofA Securities.

The Vroom Analyst: Nat Schindler initiated coverage of Vroom with a Neutral rating and $60 price target.

The Vroom Thesis: Vroom is an early entrant into the used car e-commerce market, which is massive and fragmented, Schindler said in the Monday initiation note. (See his track record here.)

The used car market witnessed merely 0.9% e-commerce adoption in 2019 versus overall e-commerce penetration of 15%, the analyst said.

The company has gained only 0.12% market share last year and has a “long growth runway with a clear path to a 23% 15-year CAGR,” he said.

Schindler said he expects e-commerce adoption in the used car space to accelerate, backed by the willingness of the digital-native generations to buy cars online; the online car buying process becoming increasingly efficient; and the COVID-related shift in consumer behavior toward private transportation.

Even if Vroom maintains its April run rate through the second quarter and shelter-in-place orders, the company will significantly exceed BofA’s near-term estimates, the analyst said.

“We see a number of growth drivers and revenue unlocks for Vroom,” he said, adding that the market had already priced in its near-term upside potential.

VRM Price Action: Shares of Vroom were up 4.64% at $56.82 at the time of publication Monday.

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