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Why Stock Popped More Than 11% Today

By Rich Smith – Aug 12, 2020 at 2:30PM

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An earnings beat and an optimistic analyst outweigh concerns over a stock sale today.

What happened

Shares of online car parts shop (PRTS 7.37%) are hopping Wednesday, rising more than 11% in early trading and still up a good 7.8% as of 1:45 p.m. EDT. In part, this is a continuation of the momentum CarParts stock has enjoyed since reporting record sales and gross profit on Monday.  

But in part, you also have to thank investment banker Craig-Hallum.

A small blue car model sits on a laptop

Image source: Getty Images.

So what ignited its stock rally all on its own this week when it reported a surprise $0.03-per-share profit and quarterly sales of $118.9 million -- 40% better than Wall Street had predicted -- sending the shares up 15% over the past two days. But it's Craig-Hallum that is keeping the rally going today, with an early morning note in which the analyst upped its price target on CarParts' stock to $20 a share.  

Calling CarParts' second-quarter earnings report "strong" would be an understatement, said Craig-Hallum. Sales increased 61% year over year in the quarter, gross profit margin exploded 480 basis points higher, and thanks to the $0.03-a-share profit, CarParts has now turned itself into a profitable operation. (This time last year, CarParts was still losing money.)

Now what

You also kind of have to admire CarParts' timing, and its ability to strike while the iron is hot. Capitalizing on the momentum its stock is enjoying (PRTS is up 1,000% over the past year), CarParts announced today that will float at least 3 million new shares, and perhaps as many as 3.75 million, potentially raising more than $57 million in new cash that it can deploy to continue growing the business. (An inside shareholder is also cashing out two million shares, but that won't detract from the money CarParts is raising for itself.)

Viewed in the light of a big earnings beat (Monday) and a big analyst vote of confidence (today), investors don't seem to mind the dilution -- or the insider sale -- one bit.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned Stock Quote
$6.12 (7.37%) $0.42

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