Vroom (NASDAQ:VRM), which sells used vehicles online, is very well-positioned to take advantage of multiple strong trends, and its growth outlook is positive, while its market cap is still relatively small. Finally, the decision by one of the world’s richest people validates the company and its business. Given these points, VRM stock looks poised to outperform the market over the long-term.
As many others have noted, Vroom should thrive during the pandemic. With tens of millions of Americans starting to go back to work and return to more recreational activities, tens of thousands of people are going to need to buy new vehicles. Yet, during the novel coronavirus pandemic, many Americans obviously want to avoid unnecessary trips, particularly trips to indoor facilities.
Also, amidst the pandemic, the lots of Americans have gotten used to buying almost everything online. Moreover, Tesla (NASDAQ:TSLA), which sells most of its vehicles online, has made buying automobiles through the internet cool and popular.
Between consumers getting used to buying most of what they need through the internet and Tesla making online vehicle purchases chic, the number of Americans buying vehicles online is likely to boom both during and after the pandemic.
As a result, Vroom’s e-commerce business and VRM stock are poised to also climb meaningfully during and after the coronavirus outbreak.
Vroom Stock and Millennials
Of course, more than older Americans, millennials have gotten used to buying most of what they need online. And I’m not surprised that, in 2018, a Business Insider headline read, “Tesla’s Model 3 is the millennial dream car.”
Given the cutting-edge technology of Tesla’s vehicles and the company’s “green” bona fides, I’m sure that wealthy millennials make up a high percentage of Tesla’s user base. Many of these wealthy millennials, who have likely become used to buying cars online due to their devotion to Tesla, could very well purchase vehicles from Vroom.
I believe that Vroom’s decision to advertise set prices, doing away with the traditional showroom haggling, will also be viewed favorably by millennials and Generation Z. That’s because younger Americans, who have grown up conducting a high percentage of their transactions and professional communications through e-mail and texts, aren’t very used to conducting business in-person.
So while haggling with used–car sales professionals has always been unpleasant for many Americans, I believe that it’s more difficult for Americans under the age of 40.
Further, given younger Americans’ high reliance on e-commerce, they aren’t very used to filling out a great deal of paperwork when they make purchases. As a result, I believe that they will be more comfortable buying cars from Vroom — which lets them fill out paperwork in their own homes and at their own pace — than from traditional dealerships where the paperwork has to be completed all at one time in a showroom.
Finally, Vroom’s decision to specialize in used cars will probably help it sell more automobiles during the recession when many people won’t have enough cash to buy new cars. And I believe that eBay (NASDAQ:EBAY) and the proliferation of websites that allow consumers to buy used products have gotten Americans much more used to purchasing second-hand items.
Bill Gates is one of the world’s richest people. I’m sure that whoever he picks to advise him on investments is highly qualified. Therefore, Gates’ decision to buy shares of Vroom makes me believe that the company is well-managed and financially secure.
The Bottom Line on VRM Stock
Vroom is highly leveraged to the explosion of e-commerce, and its business model should be very attractive to millennials. Meanwhile, the shares have a market cap of $6.5 billion. One of the company’s top competitors, Carvana (NYSE:CVNA), has a market cap of nearly $20 billion.
Since Vroom has only about $15 million of net debt, it can afford to advertise and expand until its market cap is equal to that of Carvana.
As of this writing, the author did not own any of the aforementioned stocks.