3 Reasons Why JPMorgan Is Now Bearish On TrueCar

TrueCar Inc TRUE's stock has lost more than 10 percent since the start of 2018, but investors shouldn't consider the dip as a buying opportunity, according to JPMorgan.

The Analyst

JPMorgan's Doug Anmuth downgraded TrueCar's stock rating from Neutral to Underweight with a price target lowered from $13 to $10.

The Thesis

TrueCar, an automotive pricing and information platform, could see continued underperformance into 2019 for three reasons, Anmuth said in the Friday downgrade note:

Industry trends are softening, including industry light vehicle sales, which are down 1 percent since the start of 2018. IHS Automotive lowered its outlook for light vehicle production in North America by 3 percent. The end-market set-up for new car sales, which account for 70 percent of TrueCar's business, "doesn't look robust," the analyst said. 

TrueCar's guidance of 20-percent-plus revenue growth in 2019 looks "optimistic" and requires consistent execution across all of the company's initiatives, Anmuth said. While a 20-percent or more growth rate may prove to be "achievable," a more realistic figure would be 15-percent year-over-year growth, he said. 

TrueCar's stock is trading at a premium valuation versus other small and mid-cap peers, excluding social media, at 2.4x 2018E EV/revenue versus the group median at 2.2x, according to JPMorgan. The stock is trading at a 23x multiple on an EV/EBITDA basis versus the median peer of 18x. This implies there are superior names in the small- and mid-cap space with better risk-reward profiles.

Price Action

TrueCar shares were trading lower by nearly 1 percent Thursday afternoon. 

Related Links:

Jim Cramer Gives His Opinion On Wells Fargo, Take-Two, TrueCar And More

Oppenheimer Upgrades CarMax, Says Used Car Sales, Tax Savings Support Bullish Move