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Beware U.S. Auto Parts Network; Stock Could Be A Zero

Apr. 26, 2018 5:00 AM ETCarParts.com, Inc. (PRTS)32 Comments


  • PRTS’s deteriorating fundamentals appear to be only getting worse, in an environment where e-commerce throughout the country continues to experience strong and accelerating growth.
  • The company’s recent share repurchases were authorized by PRTS’s Board despite an apparent conflict of interest, and resulted in the waste of precious corporate assets.
  • For reasons unexplained, clear and consistent director share ownership guidelines have been disregarded by most of the company’s directors for years, allowing some to avoid large personal losses.
  • PRTS’s increased use of letters of credit recently have obfuscated the true strength of the company’s balance sheet.
  • CBP is alleging that PRTS has been importing counterfeits. This could lead to onerous bonding requirements that would, in the words of PRTS's CEO, cause "cessation of operations and liquidation."

Last May, after the shares of U.S. Auto Parts Network (NASDAQ:PRTS) plummeted 20% in a day to $3.11 a share, we wrote an article explaining how the company’s largest investor Oak Investment Partners (OIP) had distributed its entire 10.8 million shareholding of PRTS's stock to the investors in one of its private equity funds. We argued that most of OIP’s investors would sell these shares into the open market, and that PRTS’s stock price would likely collapse as a result. While PRTS’s stock hasn’t yet fallen to the $1.00 level that we thought was possible at the time, it has declined recently to as low as $1.72, or more than 47% below what the price was when our article was published.

Intrigued by this unusual situation where there was likely to be relentless selling pressure on the stock for an extended period of time, we decided to dig into the company, its management and its Board of Directors a little bit more. We will share below some of the important items our research has revealed.

We believe that not only are the company’s fundamentals in the midst of a period of dramatic deterioration that is unlikely to turn around anytime soon, but PRTS is being overseen by a Board of Directors that has presided over a number of serious corporate governance failures. As well, we believe the strength of the company’s balance sheet has been obfuscated through the use of letters of credit. Furthermore, and perhaps most importantly to the future value of PRTS’s equity, the company has been recently accused by the U.S. government of repeatedly importing unlawful merchandise, the implications of which could cause, in the words of PRTS’s own CEO, the “cessation of operations and liquidation” of the company.

Deteriorating Fundamentals

To reiterate what we wrote in

This article was written by

Equity research; longs and shorts. Accounting focused.

Analyst’s Disclosure: I am/we are short PRTS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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