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After surging 13% in less than a week, shares of Zipcar (Nasdaq: ZIP ) plunged 9% in early trading on Tuesday. Did a new competitor suddenly sneak up in Zipcar's blind spot?
Not quite. Instead, the market's pessimism seemed to be driven by comments Jim Cramer made the night before. In one fell swoop, CNBC's colorful TV stock analyst ripped off Zipcar's steering wheel and chucked it out the window. Incredibly, the stock recovered all of its losses during the day, but investors were still left scratching their heads. Is Zipcar stuck in a ditch or finally gaining traction?
Zipcar's doom and gloom?
By slamming the brakes on Zipcar, Cramer apparently sent its stock into a tailspin. While Cramer's credentials are impressive in many respects, should a television personality wield that kind of power over a stock price?
Well, perhaps that's a question for another day, since the markets can be incredibly temperamental. More importantly, how do his arguments hold up?
If you evaluate the car-sharing market objectively, you have to admit that new threats are creeping into the picture. Enterprise recently entered the ring, joining Hertz (NYSE: HTZ ) , Daimler's (OTC: DDAIF.PK) Car2Go service, and others as viable alternatives to Zipcar's somewhat one-dimensional service.
While I have sung the praises of Zipcar's model before, I find it hard to ignore the convenience of Car2Go's one-way car rental service or the potential for Hertz to deploy a fleet 30 times the size of Zipcar's critical markets around the U.S.
Jim Cramer finds this last factor downright impossible to ignore. In his words:
I just don't see how tiny Zipcar, with its $400 million market cap, can compete against these titans, which already have huge fleets of cars with major rental locations all over America. Enterprise and Hertz have a built-in advantage with this business. Zipcar merely has a hip brand, and that can only take you so far.
Obviously, Cramer's not so bullish on Zipcar's revolutionary car-sharing model, first-mover advantage, or incredibly high retention rates. And he makes a strong argument. In the battle of the rental giant versus the nimble upstart, Zipcar's shares, despite losing 60% of their value since the IPO, appear pricey relative to Hertz at this point.
So if Cramer's believes Zipcar's "growth may have already peaked," should investors go ahead and jump out of a vehicle that seemed to be picking up speed? Let's take a closer look.
Rushing to conclusions about Zipcar's weeklong stock-price run-up would be like handing your 16-year-old kid the keys to your brand-new Maserati -- it's irresponsible. However, analyzing a few storylines could shed some light on Zipcar's potential.
Sure, Cramer raises some valid points about competitive threats from the car-rental industry, but his convictions fly in the face of comments made recently by Morgan Stanley's respected auto analyst, Adam Jonas -- comments I happen to agree with.
Jonas points out that "Zipcar offers a premium service and cars that people want to drive at the best locations with a brand not associated with a tired rent-a-car industry." In other words, Zipcar's brand is precisely the reason the younger generations seem to gravitate toward the car-sharing concept.
Further, Jonas notes: "Concerns over the time/effort it takes to penetrate new cities to a profitable scale are well founded, but we believe are well discounted in the price. … We think ZIP can grow 2-3 times as fast as traditional [rental car] players." So perhaps Zipcar's valuation isn't so bloated after all?
Ironically, such enthusiasm provided a stark contrast to the rest of Jonas' recent comments on the auto industry. As reported by Business Insider, Jonas bemoaned the lack of enthusiasm for even the most attractively valued companies, including Ford (NYSE: F ) and GM (NYSE: GM ) . Exposure to Europe and the cyclical volatility of large manufacturers were two reasons investors seemed altogether uninterested in what Detroit currently has to offer.
Obviously, the auto sector offers a bumpy ride these days. On top of that, all kinds of variables could throw a wrench into this market, including the fact that a younger demographic seems surprisingly indifferent to owning or driving a car at all. While I believe Zipcar remains well positioned to ride this shift in consumer trends, perhaps the volatility is too much for your tastes. In that case, avoid the sleepless nights and saddle up with three proven companies highlighted in our free report, "3 Stocks That Will Help You Retire Rich."