Why This TrueCar Analyst Is Waiting On The Sidelines

Loop Capital’s Blake Harper mentioned that the new CEO of TrueCar Inc TRUE is in the process of implementing an ambitious remodeling of the business and sales practices, with the aim of improving the company’s strained relationships with its dealer customers.

Harper initiated coverage of the company with a Hold rating and price target of $11.

Working On Improvements

“We believe the company's new "Dealer Pledge", with revamped practices that address dealers' specific concerns, is a positive step but will take time to fully take effect,” the analyst said, while adding, “Improving the consumer experience to convert more visitors is a company priority that could meaningfully accelerate revenues.”

Harper expects TrueCar to grow its revenues at a three-year CAGR of 8-10 percent, with improving EBITDA margins.

New CEO’s Plan

TrueCar’s new CEO, Chip Perry, is committed to changing the image of the company among dealers and balancing value in its marketplace, given that franchise dealer growth stalled in 2H15, although 2Q16 saw a record 10,135 franchise dealers.

Harper believes that if the company is able to accelerated its transactions in 2016, with modest improvement in its conversion rate, it could lead to revenue growth of more than 10 percent above consensus.

Valuation Reasonable

The analyst also believes the stock valuation is currently reasonable, “given the lack of profitability and challenges to the business,” while also reflecting “more positive expectations with a new strategy under the CEO.”

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