Shares of Carparts.com (PRTS -3.10%) were soaring this week, jumping 27.2% on Wednesday after the auto parts e-commerce company delivered a strong first-quarter earnings report. The company said revenue increased 15% to $166.1 million, beating estimates at $162.1 million. On a two-year window, revenue increased 80% as sales surged in the quarter a year ago when the pandemic was at its peak.
Bottom-line results were also strong, with record adjusted EBITDA of $9.4 million, up from $3.6 million a year ago, and GAAP earnings per share of $0.04, which beat estimates of a $0.02 per-share loss.
Like other e-commerce stocks, Carparts.com surged during the pandemic before falling sharply from its peak early last year. However, the latest round of results and the rebound in the stock should give investors confidence in the stock as the pandemic tailwinds fade. Here are three signs that Carparts.com stock looks like a winner.
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1. It's bucking the trend in e-commerce
Nearly every other e-commerce stock that's reported earnings this season has plunged following its result's release. That includes Amazon (AMZN 1.30%), Shopify (SHOP 4.90%), Wayfair (W 5.52%) Etsy (ETSY 2.86%), and eBay (EBAY 0.61%). The sector is experiencing a painful hangover following the heady growth during the pandemic, and investors were unprepared for the slowdown.
Not only was Carparts.com the only stock in this group to gain on earnings, but its revenue growth also outpaced that of everyone in the group except for Shopify, whose gross merchandise volume grew 16%, essentially equal to Carparts.com's 15% top-line growth. First-party sales at Amazon and gross merchandise sales at Etsy actually declined, and all key growth metrics were down for Wayfair and eBay, showing how difficult the comparisons with the year-ago quarter are in the e-commerce sector.
That Carparts.com was able to outperform those peers is a credit to the company's ability to retain customers and its growth prospects as it adds new warehouses to meet demand. Management also sees auto parts as being resistant to both inflationary and recessionary pressures, giving it an edge over other e-commerce companies that sell more discretionary items.
2. The company is delivering on the bottom line
It's no accident that Carparts.com just delivered record EBITDA in the quarter, and breezed past analyst estimates on the bottom line. New CEO David Meniane has renewed the company's focus on financial discipline, perhaps in light of the recent stock swoon, and those efforts are already bearing fruit. Free cash flow in the quarter was also positive at $1.5 million.
Achieving that kind of bottom-line improvement in an environment with high inflation and significant supply chain constraints shows the company's ability to adapt its business model and pass along price increases when warranted. Management also noted that it's carrying about $40 million more in inventory than it normally would at the current revenue level because of shipping delays, meaning that its cash flow would be even stronger in a normal supply chain environment.
Over the long term, the company is targeting adjusted EBITDA margins of 8%-10%, and it's already made significant progress toward that goal, as its EBITDA margin reached 5.7% in the first quarter.
3. The stock still looks cheap
Carparts.com is targeting long-term annual revenue growth of 20%-25%, yet the stock trades at a price-to-sales ratio of just 0.8, which is lower than all of the stocks above except for Wayfair, whose shares have plunged as it's experienced four straight quarters of declining revenue. Based on run-rate EBITDA in the first quarter, Carparts.com stock is currently valued at just 12.4 times forward EBITDA, which looks dirt cheap if it can execute on its long-term growth and profitability targets.
The market seems skeptical that Carparts.com can keep its pandemic-era momentum going, but the company doesn't plan on slowing down. It plans to open a new distribution center in Jacksonville, Florida, at the end of the second quarter and will ramp up inventory there over the rest of the year. With Jacksonville open, the company expects to be able to serve 98% of its customers with two-day delivery and 55% with one-day delivery. Over the long term, it has a goal of reaching 80% of the country with one-day delivery. Separately, Carparts.com is developing a "Do it for me" mobile mechanic service, in which customers can order the parts that they need and find mechanics to do the labor at the same time. That would greatly expand its market from just DIY customers to anyone who owns a car, and it has the potential to disrupt the auto parts industry. The company hopes to launch the service later this year.
With renewed attention to financial discipline, steady growth, and a recession-proof product category, Carparts.com looks well-positioned to continue rebounding from here.
