Analysts Think that the VRM Stock is Properly Valued After Their 97% Yearly Drop. Are They Right?

Today we are looking at Vroom, Inc. (NASDAQ: VRM), to determine if the VRM stock is a good buy. We will look at VRM financials, analyst ratings, and comparable valuation to determine a Vroom Stock Forecast. What does VRM Do? Vroom, Inc. operates as an e-commerce used automotive retailer in the United States. It operates end-to-end ecommerce platform for buying, selling, transporting, reconditioning, pricing, financing, registering, and delivering vehicles. The company was formerly known as Auto America, Inc. and changed its name to Vroom, Inc. in July 2015. The company was incorporated in 2012 and is headquartered in New York, New York. Laying out Information for a Vroom Stock Forecast Who are Vroom, Inc.'s Competitors? In order to undergo a comparable analysis (to determine VRM stocks value), we need to first outline who VRM's competitors are. These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to VRM, and have a market cap similar to VRM (if possible). By keeping this in mind, I found the following list of companies to be some of VRM stocks closest competitors: CVNA, CZOO, CARG, and CPRT Vroom, Inc.'s Earnings are Getting Progressively Worse VRM Earnings (Yearly): VRM Revenues: In FY 2021, VRM experienced a yearly increase in revenues of $1.83B (or 134.53%) resulting in a total revenue figure of $3.18B. VRM Cost of Revenues: In FY 2021, VRM experienced a yearly increase in their cost of revenues of $1.7B (131.87%), resulting in a total revenue figure of $2.98B. Since the increase (of 131.87%), in VRM's cost of revenue was lesser (by -2.67%) than the increase (of 134.53%) in VRM's revenues, we should expect that VRM experienced an increase in their FY gross profits. VRM Gross Profit: In FY 2021, VRM experienced a yearly increase in their gross profit of $130.55M (or 182.48%) resulting in a total gross profit of $202.1M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY 2020 and FY 2021. VRM EBITDA: In FY 2021, VRM experienced a yearly decrease in their EBITDA of $-146.59M (or 77.81%) resulting in a total EBITDA of $-334.99M. This decrease (of 77.81%) in EBITDA is quite surprising given that VRM was able to increas their EBITDA by over 100%. VRM Net Income: In FY 2021, VRM experienced a yearly decrease in their net income of $-168.11M (or 82.9%) resulting in a total net income of $-370.91M. VRM EPS: Despite VRM's decrease in net income of $-168.11M, VRM managed to increase their EPS (by $0.04) from $-2.76 in FY 2020 to $-2.72 in FY 2021 Overall, VRM's 2021 earnings were rather mixed, with VRM managing to increase their revenues, gross profits, and EPS, while experiencing a decrease in Net Income. and EBITDA. This is rather odd as companies that experience a gain in EPS tend to also experience a gain in their net incomes. In order to find out more about VRM's earnings, I have decided to also provide a section that analyzes their Q1 2022 financials. VRM Earnings (Quarterly): VRM Revenues: In Q1 2022, VRM experienced a quarterly decrease in revenues of $-156.18M (or -16.71%) resulting in a total revenue figure of $778.31M. VRM Cost of Revenues: In Q1 2022, VRM experienced a quarterly decrease in their cost of revenues of $-193.11M (-21.7%), resulting in a total revenue figure of $696.67M. Since the decrease (of -21.7%), in VRM's cost of revenue was lesser (by -4.99%) than the decrease (of -16.71%) in VRM's revenues, we should expect that VRM experienced an increase in their Q1 gross profits. VRM Gross Profit: In Q1 2022, VRM experienced a quarterly increase in their gross profit of $36.93M (or 82.62%) resulting in a total gross profit of $81.64M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 2022 and Q4 2021. VRM EBITDA: In Q1 2022, VRM experienced a quarterly decrease in their EBITDA of $-197.95M (or 167.09%) resulting in a total EBITDA of $-316.42M. This decrease (of 167.09%) is once again rather odd dur to the fact that VRM experienced an increase in their gross profits. VRM Net Income: In Q1 2022, VRM experienced a quarterly decrease in their net income of $-180.67M (or 139.2%) resulting in a total net income of $-310.46M. VRM EPS: As a result of VRM's decrease in net income of $-180.67M, VRM's EPS also decreased (by $-1.31) from $-0.95 in Q4 2021 to $-2.26 in Q1 2022 Overall, it seems as though VRM had a poor financial performance (due to EPS $-1.31) as many of their financial metrics shrunk, most notably their EPS (by $-1.31), as well as their net income (by $-180.67M), and other metrics (as you can tell from the above bullet points). Furthermore, this report made more sense as VRM's EBITDA, and net income decreased which was reflected by a decrease in their EPS. However, despite this seemingly poor performance VRM's stock beat their EPS estimate by $0.3, as they reported an EPS of $-0.71 for the quarter (compared to their estimated EPS of $-1.01).This earnings beat provides a cause for excitement among VRM investors that is not available through their "on-paper" earnings report. Very Little VRM Share Dilution Moving Forward As part of their Q1 2022 earnings release, VRM stated that they currently have 137.26M Shares Outstanding (weighted average), which is up 311.17k shares (from 136.95M shares outstanding in Q4 2021). This is essentially negligible as it represents something like a 0.25% share dilution, which is not cause for concern. Furthermore, VRM stock has 0 of shares that they can issue (thereby diluting VRM's stock). This is great news for VRM investors as dilution has proven to be an issue in their stock (especially the lock-up expiration) as their shares outstanding CAGR has been 11%. Analysts Are Overwhelmingly Bullish on the VRM Stock Here is the current spread of VRM stock ratings. In total there are 27 VRM stock ratings, which fall in the following categories. 16 Buys 11 Holds 0 Sells Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if VRM stock is a buy or sell. Overall, the majority of analysts are bullish on the VRM Stock, and there is not one analyst that is bearish. This is a good indication that VRM may be at or close to their fair value, and now might be a good time to buy. Let's look into this further into this (via a Comparable Vroom Stock Forecast) to determine if this is the case. Arriving at a Vroom Stock Forecast Using a Comparable Analysis to Determine a Vroom Stock Forecast Price to Sales (P/S): VRM's current P/S ratio is 0.05, compared to the average P/B ratio of VRM's peers being 0.89. This implies that VRM is undervalued, and their share price should change by a factor of 1,680% to be at fair value (based on VRM's P/B compared to the P/B of their peers). Price to Book (P/B): VRM stock P/B ratio is currently 0.29, compared to the average P/B ratio of VRM's peers being 3.41. This implies that VRM is undervalued, and their share price should change by a factor of 1,076% to be at fair value (based on VRM's P/B compared to the P/B of their peers). Overall, VRM stock is undervalued and needs to experience a change in stock price of (an average of) 1,378% to be considered “at fair value”. Is VRM a good stock to buy right now? Overall, I think that VRM would be a good shorter term buy. This is due to the fact that my comparable analysis has indicated that the VRM stock is undervalued, which is also supported by the many "buy" and "hold" ratings given to the VRM stock by analysts. However, the reason I would not want to hold this long term is due to their declining earnings reports. My Vroom stock forecast would be somewhere between +10-20% within the next month or two. If this is not the case I would close my position either for a gain of less than 10% or even a loss (as I would not want to hold this long term, as it currently stands).

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Analysts Think that the VRM Stock is Properly Valued After Their 97% Yearly Drop. Are They Right?

Jul 5, 2022

bullish

general Analysis

[6 min Read]

blog post cover photo

Photo by: Ville Kaisla

Today we are looking at Vroom, Inc. (NASDAQ: VRM), to determine if the VRM stock is a good buy. We will look at VRM financials, analyst ratings, and comparable valuation to determine a Vroom Stock Forecast.

What does VRM Do?

Vroom, Inc. operates as an e-commerce used automotive retailer in the United States. It operates end-to-end ecommerce platform for buying, selling, transporting, reconditioning, pricing, financing, registering, and delivering vehicles. The company was formerly known as Auto America, Inc. and changed its name to Vroom, Inc. in July 2015. The company was incorporated in 2012 and is headquartered in New York, New York.

Laying out Information for a Vroom Stock Forecast

Who are Vroom, Inc.'s Competitors?

In order to undergo a comparable analysis (to determine VRM stocks value), we need to first outline who VRM's competitors are.

These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to VRM, and have a market cap similar to VRM (if possible).

By keeping this in mind, I found the following list of companies to be some of VRM stocks closest competitors:

CVNA, CZOO, CARG, and CPRT

Vroom, Inc.'s Earnings are Getting Progressively Worse

VRM Earnings (Yearly):

  • VRM Revenues: In FY 2021, VRM experienced a yearly increase in revenues of $1.83B (or 134.53%) resulting in a total revenue figure of $3.18B.
  • VRM Cost of Revenues: In FY 2021, VRM experienced a yearly increase in their cost of revenues of $1.7B (131.87%), resulting in a total revenue figure of $2.98B. Since the increase (of 131.87%), in VRM's cost of revenue was lesser (by -2.67%) than the increase (of 134.53%) in VRM's revenues, we should expect that VRM experienced an increase in their FY gross profits.
  • VRM Gross Profit: In FY 2021, VRM experienced a yearly increase in their gross profit of $130.55M (or 182.48%) resulting in a total gross profit of $202.1M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY 2020 and FY 2021.
  • VRM EBITDA: In FY 2021, VRM experienced a yearly decrease in their EBITDA of $-146.59M (or 77.81%) resulting in a total EBITDA of $-334.99M. This decrease (of 77.81%) in EBITDA is quite surprising given that VRM was able to increas their EBITDA by over 100%.
  • VRM Net Income: In FY 2021, VRM experienced a yearly decrease in their net income of $-168.11M (or 82.9%) resulting in a total net income of $-370.91M.
  • VRM EPS: Despite VRM's decrease in net income of $-168.11M, VRM managed to increase their EPS (by $0.04) from $-2.76 in FY 2020 to $-2.72 in FY 2021

Overall, VRM's 2021 earnings were rather mixed, with VRM managing to increase their revenues, gross profits, and EPS, while experiencing a decrease in Net Income. and EBITDA. This is rather odd as companies that experience a gain in EPS tend to also experience a gain in their net incomes. In order to find out more about VRM's earnings, I have decided to also provide a section that analyzes their Q1 2022 financials.

VRM Earnings (Quarterly):

  • VRM Revenues: In Q1 2022, VRM experienced a quarterly decrease in revenues of $-156.18M (or -16.71%) resulting in a total revenue figure of $778.31M.
  • VRM Cost of Revenues: In Q1 2022, VRM experienced a quarterly decrease in their cost of revenues of $-193.11M (-21.7%), resulting in a total revenue figure of $696.67M. Since the decrease (of -21.7%), in VRM's cost of revenue was lesser (by -4.99%) than the decrease (of -16.71%) in VRM's revenues, we should expect that VRM experienced an increase in their Q1 gross profits.
  • VRM Gross Profit: In Q1 2022, VRM experienced a quarterly increase in their gross profit of $36.93M (or 82.62%) resulting in a total gross profit of $81.64M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 2022 and Q4 2021.
  • VRM EBITDA: In Q1 2022, VRM experienced a quarterly decrease in their EBITDA of $-197.95M (or 167.09%) resulting in a total EBITDA of $-316.42M. This decrease (of 167.09%) is once again rather odd dur to the fact that VRM experienced an increase in their gross profits.
  • VRM Net Income: In Q1 2022, VRM experienced a quarterly decrease in their net income of $-180.67M (or 139.2%) resulting in a total net income of $-310.46M.
  • VRM EPS: As a result of VRM's decrease in net income of $-180.67M, VRM's EPS also decreased (by $-1.31) from $-0.95 in Q4 2021 to $-2.26 in Q1 2022

Overall, it seems as though VRM had a poor financial performance (due to EPS $-1.31) as many of their financial metrics shrunk, most notably their EPS (by $-1.31), as well as their net income (by $-180.67M), and other metrics (as you can tell from the above bullet points). Furthermore, this report made more sense as VRM's EBITDA, and net income decreased which was reflected by a decrease in their EPS.

However, despite this seemingly poor performance VRM's stock beat their EPS estimate by $0.3, as they reported an EPS of $-0.71 for the quarter (compared to their estimated EPS of $-1.01).This earnings beat provides a cause for excitement among VRM investors that is not available through their "on-paper" earnings report.

Very Little VRM Share Dilution Moving Forward

As part of their Q1 2022 earnings release, VRM stated that they currently have 137.26M Shares Outstanding (weighted average), which is up 311.17k shares (from 136.95M shares outstanding in Q4 2021). This is essentially negligible as it represents something like a 0.25% share dilution, which is not cause for concern. Furthermore, VRM stock has 0 of shares that they can issue (thereby diluting VRM's stock). This is great news for VRM investors as dilution has proven to be an issue in their stock (especially the lock-up expiration) as their shares outstanding CAGR has been 11%.

Analysts Are Overwhelmingly Bullish on the VRM Stock

Here is the current spread of VRM stock ratings. In total there are 27 VRM stock ratings, which fall in the following categories.

  • 16 Buys
  • 11 Holds
  • 0 Sells

Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if VRM stock is a buy or sell. Overall, the majority of analysts are bullish on the VRM Stock, and there is not one analyst that is bearish. This is a good indication that VRM may be at or close to their fair value, and now might be a good time to buy. Let's look into this further into this (via a Comparable Vroom Stock Forecast) to determine if this is the case.

Arriving at a Vroom Stock Forecast

Using a Comparable Analysis to Determine a Vroom Stock Forecast

  1. Price to Sales (P/S): VRM's current P/S ratio is 0.05, compared to the average P/B ratio of VRM's peers being 0.89. This implies that VRM is undervalued, and their share price should change by a factor of 1,680% to be at fair value (based on VRM's P/B compared to the P/B of their peers).
  2. Price to Book (P/B): VRM stock P/B ratio is currently 0.29, compared to the average P/B ratio of VRM's peers being 3.41. This implies that VRM is undervalued, and their share price should change by a factor of 1,076% to be at fair value (based on VRM's P/B compared to the P/B of their peers).

Overall, VRM stock is undervalued and needs to experience a change in stock price of (an average of) 1,378% to be considered “at fair value”.

Is VRM a good stock to buy right now?

Overall, I think that VRM would be a good shorter term buy. This is due to the fact that my comparable analysis has indicated that the VRM stock is undervalued, which is also supported by the many "buy" and "hold" ratings given to the VRM stock by analysts. However, the reason I would not want to hold this long term is due to their declining earnings reports.

My Vroom stock forecast would be somewhere between +10-20% within the next month or two. If this is not the case I would close my position either for a gain of less than 10% or even a loss (as I would not want to hold this long term, as it currently stands).

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VRM

Vroom, Inc.

2.12

0.01
0.47%

Return

-
Position Return %
0.00
Position Return
1.26
Price When Posted

Metrics

1.39
Target Price
7/ 10
Confidence
1-2 Months
Timeframe
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News
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SEC
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