- Vroom (VRM) is going to have a tough time convincing automotive shoppers to buy used cars in the current market.
- Besides, Vroom appears to be having difficulty turning its revenue into bottom-line profits.
- Investors should consider steering clear as a stake in VRM stock could continue to lose value.
New York-based digital car-buying platform Vroom (NASDAQ:VRM) is, on the surface, an interesting business in the digital economy. Yet, despite the rapid expansion of e-commerce in recent years, VRM stock is a no-go for cautious investors.
It’s not hard to see why some folks would want to hold shares of Vroom. The stock looks cheap, and online commerce has been red-hot since the onset of Covid-19.
However, sometimes cheap stocks are that way for good reasons. As we’ll discover, Vroom’s financial profile is far from perfect, and the used car market is highly unfavorable in 2022.
What’s Happening with VRM Stock?
From a technical perspective, it’s awfully difficult to build a bullish case in favor of VRM stock. Vroom went public at $22 per share and there was an initial burst of hype, but it didn’t last very long.
Nimble traders might have booked a quick profit with their Vroom shares. However, long-term investors are undoubtedly disappointed as the stock has been on a relentless, painful downward slide.
Recently, VRM stock traded at just $2 and change. This could be described as cheap, but don’t consider it a bargain until you’ve looked under the hood and learned more about Vroom.
To get the full picture, don’t just rely on Vroom’s press releases, which might only provide a glossy fiscal picture. Instead, you’re encouraged to delve into Vroom’s most recently issued Form 10-K, which gives you the good, the bad and the just plain nasty.
So, here’s the nasty part. Despite annual revenue improvements, Vroom ended up reporting increasing annual net earnings losses (the following figures are rounded):
- 2019: $143 million
- 2020: $203 million
- 2021: $371 million
As you can see, Vroom’s net losses aren’t just widening; they’re cavernous. Truly, the best phrase to describe the company would be “money pit.”
Its EBIDTA (earnings before interest, taxes, depreciation and amortization) is also moving in the wrong direction. Appallingly, Vroom’s full-year EBIDTA moved further into the red, from rounded figures of -$128 million in 2019 to -$194 million in 2020, then to -$345 million in 2021.
It’s a Tough Time to Sell Used Cars
The company might try to present itself as an e-commerce up-and-comer. However, let’s not forget Vroom is in the business of facilitating used vehicle sales.
2022 is turning out to be a tough year for the used car business. For the lowdown on this, we can turn to Pat Ryan, founder and CEO of CoPilot, a company that tracks prices at car dealerships nationwide.
Ryan was forthright in his assessment of this hard-pressed market. “The average American, the normal working person, can’t afford to buy a new car because the prices are just very high; there’s a shortage of inexpensive vehicles available,” Ryan declared.
One study from February calculated that a “lightly used” car cost 1.3%, or $533, more than its new-car counterpart. That’s mind-boggling, when you really think about it.
In a similar vein, Ryan observed that a “used car that is one, two, three years old is selling for 96% of the original sticker price for that car.” Ryan further noted there’s a real shortage of inexpensive cars.
If that’s the case, then why would anyone buy a used car? It sounds like they’re generally hard to find and cost around the same price as — or maybe even more than — a brand-new car.
That’s bad news, of course, for any business that depends on used vehicle sales. Unfortunately, Vroom falls squarely into that category.
What You Can Do Now With VRM Stock
Vroom’s revenue growth is overshadowed by the company’s horrendous net earnings losses. Those losses have only expanded during the past several years.
Plus, 2022 thus far hasn’t been kind to businesses involved with the used-vehicle trade. One can only imagine Vroom will struggle in this unfavorable market environment.
Sure, VRM stock probably looks cheap at first glance. If you end up buying and holding the stock, though, you’re liable to stall out and blow a gasket.
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On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.