Investors’ initial reaction to a beaten-down stock is a very human one. Nobody’s natural inclination is geared towards backing a losing horse, so when we see a stock that has been hit hard, our innate tendency is to stay away and seek out the more successful names.
But as any investor worth their salt already knows, while there’s certainly a degree of risk involved, the down-trodden tickers can be the ones set to present intrepid investors with the most abundant returns. Where investing skill really comes into play, though, is finding the most compelling choices.
Taking this into account, we found two stocks currently on the receiving end of a beating from the market. The two, though, have also been getting some support from the Street, with certain analysts foreseeing a turnaround on the horizon. Using TipRanks’ Stock Comparison tool, we lined the two up side by side to get a clearer picture of what the future might have in store.
CarGurus Inc. (CARG)
CarGurus released its Q4 earnings report on February 14, and if the largest online auto marketplace in the US was expecting some Valentines love from the Street, it was sorely disappointed. Despite beating Street estimates for both the top and bottom-line, investors jumped out of the car(g) as shares fell following the earnings call.
So, what got investors so spooked? Simple: fiscal 2020 guidance came in below Street expectations. Analysts were looking for $163.6 million for the year, while management expects revenue to come in between $156.5 million and $159.5 million. The outlook for earnings didn’t impress the Street, either. CARG expects EPS of between $0.50 to $0.55 in 2020, significantly below analysts’ estimates of $0.66 per share.
Management explained it expects flat growth in its advertising segment as it makes adjustments to the CarGurus website, intentionally reducing its ad load. Additional headwinds due to the shift from desktop to mobile will also affect impressions and CPMS (cost per mile). It doesn’t help that the recent acquisition of Autolist has further impacted operating income for the year, which was compressed by $7.5 million due the outlay.
Despite the sell-off, Oppenheimer’s Jed Kelly thinks CarGurus’ platform is “still best positioned for share gains.”
Kelly wrote, “We believe CARG’s proprietary valuation technology and clean UX are creating sustainable traffic advantages, which, in our view, are evolving into a leading marketing platform for US car dealers. Furthermore, international expansion offers a large opportunity based on CARG executing a similar playbook that disrupted legacy US players with a decade’s head-start. All in, we believe the company is well positioned to gain incremental share of dealer advertising budgets, where the company is single-digit percentage of its ~$7–8 billion US TAM.”
The 5-star analyst maintains an Outperform rating on CARG shares, though the disappointing print caused him to reduce his price target, from $48 to $36. The new figure still indicates possible upside of a considerable 30%. (To watch Kelly’s track record, click here)
William Blair’s Ralph Schackart is a fellow bull. The 5-star analyst noted, “Historically, management has been conservative—initial outlooks for 2018 and 2019 actual revenues were 13% and 5% above initial revenue guidance at the midpoint, respectively. While investors will take some time to digest the flat advertising revenue in 2020 vs. 2019, we think these changes are necessary to optimize the website with the goal of increased conversion for dealers. To give some perspective on conservatism, we are modeling about 10% AARSD growth in 2020, or about half its 2019 growth.” Schackart, accordingly, maintains an Outperform rating on CarGurus, though hasn’t set a price target. (To watch Schackart’s track record, click here)
Looking at the consensus breakdown, 4 Buys and 2 Holds received over the last three months add up to a Moderate Buy consensus rating. Additionally, based on the $46.50 average price target, shares could surge by 86% in the next twelve months. (See CarGurus’ price targets and analyst ratings on TipRanks)
Mirroring CarGurus’ recent travails almost to a T, LivePerson’s recently released 4Q19 results have sent the stock stumbling down by 25%. If that wasn’t similar enough to CarGurus’ fortunes, then the reason for investors rushing to the exit is identical, too.
The messaging-technology company’s generally solid report was hampered by weak 1Q20 guidance; LivePerson forecasts revenues of $77.5 million to $78.5 million, below the Street’s estimate of $80.4 million.
Seasonally slower trends in the company’s gainshare business, in addition to elevated corporate expenses in 1Q20 have been cited as reasons for the low quarterly forecast. Management anticipates 1Q20 will represent the bottom for both revenue growth and adjusted EBITDA, with it expecting steady growth acceleration in 2H20.
LivePerson’s growth over the last five years has been impressive, with the share price more than tripling during the period. Although the recent disappointing guidance led to a sell-off, the Q4 report had some impressive figures, too; LivePerson signed 149 deals in the quarter, up 20.2% year-over-year. This gain was driven by a mix of new and existing customer contracts.
The latest pullback hasn’t dampened B.Riley FBR analyst Zach Cummins’ enthusiasm. Cummins recommends “investors take advantage of the expected weakness,” as the analyst believes LivePerson’s “accelerated growth story remains on track.”
Cummins added, “For our model, we are raising our FY20 and FY21 revenue estimates, but we are lowering our adjusted EBITDA estimates to reflect the increasing product investments. While these elevated investments do raise some concerns, the growth story remains on track in FY20 and is ahead of expectations in FY21, which should drive further operating leverage in the model in 2H20 as management is targeting the rule of 40 on quarterly basis in the next 12-18 months.”
To this end, Cummins reiterated a Buy rating on LPSN along with a $51 price target, implying potential upside of a hefty 56%. (To watch Cummins’ track record, click here)
What does the Street make of the conversational commerce leader’s prospects? LPSN’s Moderate Buy consensus rating breaks down into 5 Buys and 2 Holds. At $45.17, the average price target suggests possible 12-month gains in the shape of 38%. (See LivePerson price targets and analyst ratings on TipRanks)