TrueCar (NASDAQ:TRUE) is one of this summer's biggest losers, but investors caught a break last week.
Shares of TrueCar, a provider of new customer leads for the automotive industry, soared 21% last week. A favorable mention in an article from TheStreet.com and the announcement of a forecast for steady industrywide car sales helped push the stock higher. But let's not kid ourselves: TrueCar stock has still surrendered nearly 75% of its value so far this year, even after last week's bounce. Barring a pop in Monday's trading, we'll also be eyeing the sixth consecutive month of a share-price decline.
All of this makes any celebration over last week's surge seem hollow, but let's dive into the catalysts for the higher move before turning our attention to the challenges that remain in persuading Wall Street to go along for the ride this time.
It was a week to remember
TheStreet.com's article identified six stocks trading in the single digits that were breakout candidates. TrueCar was played up in the piece based on technical analysis, suggesting that it could pop to the upside if it's able to clear some pesky resistance levels.
The bullish write-up came out a day after TrueCar issued a press release on industry trends. It's projecting that the seasonally adjusted annualized rate for cars and light trucks should total 17.4 million in August, up from 17.3 million a year earlier. TrueCar's seeing a downtick in vehicle sales in recent weeks, but the late Labor Day holiday should push sales into next month.
The general market rally after the initial flash crash on Monday morning also helped. Many of this year's biggest losers managed to pull off double-digit percentage gains for the week.
It's been a year to forget
TrueCar's model is not rocket science. It arms potential car buyers with information on recent sales and works with a growing number of showroom partners to honor low pricing. It's an easy way to grab a fair deal, and TrueCar's revenue growth despite this year's carnage validates the model.
Crack open the hood, though, and the engine starts to fall apart. For starters, TrueCar's model doesn't sit well with all showrooms. Several car dealers filed a complaint on TrueCar's marketing practices. Others argue that the model itself violates industry standards pertaining to broker endorsements and dealer licensing. Back in July we saw AutoNation and TrueCar agree to part ways.
There's also the looming threat of competition, but the biggest culprit to TrueCar's wrecked stock this year has been the company's performance itself. The stock took a huge hit earlier this summer after TrueCar announced weak preliminary financials for the second quarter, hosing down its guidance in the process. It's now looking at between $252 million and $258 million in revenue this year, well below its springtime update calling for as much as $290 million on the top line. Earlier this month, its founding CEO announced that he will be stepping down.
Profitability has always been a challenge since TrueCar went public at $9 last year, but top-line growth is certainly there -- even if it's been tempered dramatically since July's guidance revision. Analysts see modest revenue growth from here, targeting 22% in improvement for all of 2015, followed by a 19% uptick next year. They see quarterly losses to close out the year before turning the corner on the bottom line in 2016.
A lot is riding on the current quarter. If it's able to grow its franchise dealer base of partners and at least stick to its July revised guidance, investors should start to feel confident that TrueCar's performance is starting to stabilize. If it can't meet those reasonable goals, it won't be a surprise to see TrueCar stock shift back into reverse.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends TrueCar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.