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Why Vroom Stock Jumped 14% Last Month

By Jeremy Bowman - Jan 6, 2021 at 2:06PM

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The online used car dealer rose with the help of an analyst upgrade.

What happened

Shares of Vroom ( VRM -6.78% ) were marching higher last month as the online used car dealer got a boost from an analyst upgrade, and also responded to the passage of a second relief bill, which included $600 individual stimulus payments. According to data from S&P Global Market Intelligence, the stock finished the month up 14%.

As you can see from the chart below, the bulk of the gains came in the middle of the month, after the positive analyst note came out.

VRM Chart

VRM data by YCharts

So what

Vroom stock started gaining on Dec. 14, rising 2% that day and finishing the week up 18%, after Truist initiated coverage on the e-commerce stock with a buy rating. Analyst Naved Khan gave the stock a price target of $58, implying 75% upside at the time, and called the company an "online disruptor" in the used car industry. Khan argued that the company's asset-light model will help it rapidly scale its operations and gain share in a market worth nearly $1 trillion. He also estimated the company would grow its revenue by a compound annual rate of 39%, which translates into revenue growing 27 times from the $1.3 billion over the last four quarter it stands at today.

A Vroom flatbed truck

Image source: Vroom.

The following week, the stock got another boost, gaining 5% after Congress passed a second coronavirus relief package that is expected to help the economy recover and give consumers more discretionary spending money, which should lift used car sales.

Now what

Vroom stock has essentially been flat through the first three sessions of the new year, but another analyst jumped on the bandwagon as Stifel's Scott Devitt added Vroom to his Select List, after earlier giving it a buy rating. Devitt sees the online used car market being more stable than other e-commerce sectors as the pandemic is expected to fade this year.

 The shift to remote work is likely to drive sales in the used auto market as well. With those tailwinds and $2,000 stimulus checks now potentially on the way, conditions look favorable for Vroom to bounce back after a rocky debut in 2020.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Vroom, Inc. Stock Quote
Vroom, Inc.
$12.65 (-6.78%) $0.92
Truist Financial Corporation Stock Quote
Truist Financial Corporation
$58.48 (-3.15%) $-1.90

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