TrueCar Upgraded to Buy From Neutral at B. Riley FBR

Sifting through the listing of companies trading on the NASDAQ, one shares B. Riley FBR (OTC:BRKR) stock is a relatively obscure but increasingly valuable offering: TrueCar (NASDAQ:TRUE). As TrueCar steadily pursues the acquisition of a prime real estate within the Motley Fool Broker Network from a higher premium per subscriber the shares will inevitably catch the attention of investors for personal purchasing power, capital appreciation, and income.

TrueCar delivered across the board gains in 2018: revenues surged by 27.6% to $444.4 million, from $375.8 million and an EPS return on equity of 14.4% from -4.46% due to improved operating efficiency. There were 29 analysts covering the stock at the time of this report. The analysts unanimously recommend the stock as a buy, with a mean price target of $16.03 and target of $16.30, respectively. This represents a ~13% upside from current trading price. Our price target is $15 based on revenue growth rate and an ROE multiple of 24.26.

TrueCar price over the years has fluctuated between $8.76 and $12.00, but it was discounted roughly a third of its price from FY2015 to FY2017. A recent rally has created a 16% premium over the previous trading range to go along with our above target of $15.00.

Attractive investment and trading potential

TrueCar in my opinion is the beneficiary of the moment. The company has transitioned from being a side business to a major focus for auto retailers which form the backbone of the purchase decisions for a large number of new car buyers. TrueCar has positioned itself in such a way that it secures a larger market share of the auto retail industry as a whole.

Their background as well as mission have made them one of the strongest IPOs in the past decade with stock to trade at $36.00 in December 2014 and $8.76 in May 2015. Once essentially forgotten, the TrueCar was resurrected due to a strong turnaround in its business model, growth, and financial position. They have the benefit of a younger, more dynamic consumer base and technology enabled growth that is projected to deliver market and superior growth over a longer period of time.

This snapshot of growth shows that the company is making a major pivot in its business model and strategy. With this transformation the analysts have projected their revenue to grow by an average of 19.2% per year for the next 5 years. Given the current ROE profile their future growth rate will translate into cash generation for the company to fund further operations.

The TrueCar shares offer double the risk while providing a double in the return potential for investors. The TrueCar management team is known for timely execution and is uniquely positioned to capitalize on this once in a generation opportunity. This provides investors with the opportunity to invest in the leading technology company that is currently outperforming. As the company grows to deliver returns on capital of 35-36% per year the shares trade at less than 9 times trailing twelve months EBITDA, compare this to highly leveraged companies on the US market that trade at 17.75 times.

In my opinion, the TrueCar’s in the streets may become a bigger indicator of the true value of a company as the next few years come. Today, TrueCar is a Buy from B. Riley FBR.

Related posts

Leave a Comment