When I look at the price chart of Vroom stock (NYSE:VRM), I keep seeing starry-eyed investors saying “I would totally do that.” And that’s great news for Vroom’s long-term outlook. But it’s the here and now that concerns me.
If Carvana (NYSE:CVNA) delivered the proof of concept, then Vroom is taking things to the next level. And there’s something very appealing about the Vroom model. Particularly to younger consumers who, in many cases, lack certain soft skills that makes the car buying process particularly intimidating.
Then again, for some of these consumers, if you can’t order it off your phone, does it really exist?
Either way, Vroom is a bankable concept. But that doesn’t make it a great stock to buy at the moment. I expressed my concerns in July. Of course, Vroom stock went up tremendously since then. But I still have a bearish attitude towards the stock. And that is shared by Josh Enomoto who is also skeptical about selling cars online during a pandemic.
More Reasons Why Car Owners Hate Beige
Beige is not a very popular car color. And, it will cause a car’s value to depreciate faster. I’m sure Vroom knows this and probably does everything humanly possible to steer prospective owners away from beige cars.
But beige may start to cause Vroom fits for other reasons. The Beige Book that is. On September 2 the U.S. central bank’s Beige Book indicated what many Americans are already experiencing.
First a little bit of good news. The economy did expand in August. And the central bank said that spending on new cars was a bright spot.
However, this growth was not evident in all parts of the country. “Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country,” read the report.
Many temporary furloughs became permanent layoffs. And that is likely to have a ripple effect on the economy in subsequent quarters.
In the company’s earnings report in August, Vroom signaled this may be true. It provided a revenue estimate for the third quarter that was far lower than analysts’ expectations.
Will Vroom Stock Rev Up With the New Normal?
There is an avenue that I see for Vroom stock to justify its current valuation (the company’s market capitalization is now over $8 billion). But you may not like it.
I’ve been following the vaccine race fairly closely. And, if a vaccine is possible, I want it done right. It can’t be produced by executive fiat. With that said, I don’t believe there will be a safe, effective vaccine by Election Day, and certainly not by October.
Ok, Debbie Downer what’s your point? My point is that there’s circumstantial evidence that Americans are adapting. We’ve always been good at that. And we are creating a new playbook for the “Covid era.”
And I think part of that playbook, at least for the next year will be a return to the old-fashioned road trip. Flying is not dead, but without a vaccine I don’t see it picking up in a meaningful way. And cruise ships aren’t going anywhere until there is mass vaccination.
So for many travelers with wanderlust, the car it is. And now that many Americans have remodeled their home, a new vehicle may be a practical purchase. That’s what the Beige Book may be suggesting as well. It will take a couple more quarters to see if it’s an actual trend.
Loving the Concept Isn’t Enough
Vroom falls into that category of “love the company, hate the stock.” I can’t help but advise readers to stay away from Vroom stock. For now. There are a lot of ifs with this economy that make me think that holiday ads showing smiling customers with new cars will be the new Peloton (NASDAQ:PTON) couple
But there are elements of our society that are going to change forever. And the idea of buying a car online is not new; it’s just getting a little kick from the novel coronavirus. There is a long-term story for Vroom. I’m just skeptical about that story playing out profitably in the next 12 months.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019.