Vroom (NASDAQ:VRM) is riding high today after reporting positive quarterly earnings. Indeed, the used-car rush has created some new winners in the automotive sector, including this digital New York-based car retailer. Earlier today, VRM stock skyrocketed after its first-quarter earnings exceeded Wall Street expectations. While shares have come down since this morning’s spike, the company is worth a closer look.
This morning’s surge earned VRM stock a place among Wall Street’s top pre-market gainers, spiking more than 55%. However, that early trading high seems to have been the peak. Still, as of this writing, VRM stock is up more than 25% for the day and could certainly rebound. While shares have come down quite a bit from the initial surge, this type of growth from a microcap penny stock remains noteworthy.
Here’s what investors should know about Vroom moving forward.
What’s Happening with VRM Stock?
Let’s take a look at Vroom’s Q1 earnings results. For the period, the company sold 19,473 e-commerce units, a gain of 26% year-over-year (YOY). Revenue from these sales reached $675.4 million and e-commerce profit topped $34.3 million, gains of 60% YOY and 8% YOY respectively. What’s more, Vroom posted an adjusted loss of 71 cents per share, better than the $1.01 loss predicted by analysts. Finally, total revenue came in at roughly $924 million, beating Wall Street’s prediction of around $878 million.
For the fiscal year, Vroom expects e-commerce unit sales to range between 45,000 to 55,000. Its EBITDA (earnings before interest, taxes, depreciation, and amortization) loss is also predicted to fall between $375 million to $325 million.
Vroom has other good news to report on top of the earnings success, however. Specifically, it has successfully completed its first “auto loan securitization transaction.” The company also recently promoted Thomas Shortt to the role of CEO.
With good news on several key fronts, it’s easy to see why VRM stock is roaring ahead today. However, the company should be assessed through a macroeconomic lens, too.
Today is the first day in months that VRM stock has been up. Over the past six months, the stock has lost more than 90% of its value. Even with today’s surge, shares still trade at less than $1.50 per share, far below its highs last year. This disparity illustrates just how far the company has fallen in only a few months.
Additionally, used car prices appear to be stabilizing for the first time this year. Cox Automotive reports that the Manheim Used Vehicle Value Index fell 1% this April, “marking the third straight month of declines from the first month of the year.” An analyst team from JPMorgan (NYSE:JPM) has also predicted used car prices will soon stabilize.
What It Means
All of this doesn’t mean that VRM stock can’t get back on the road. As InvestorPlace contributor Mark Hake notes, the company’s new CEO has a plan to turn Vroom around. However, the company’s habit of burning through cash is still disconcerting. As such, shares will be difficult to value until the results of Shortt’s leadership become apparent.
If used auto prices do stabilize, this will likely be the only real growth investors see from VRM stock all year. However, Vroom is still worth watching as its new CEO works on a turnaround.
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On the date of publication, Samuel O’Brient did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.