Source: autonews.com
Investment Thesis
Alongside Carvana (CVNA), Vroom (VRM) is an auto e-commerce platform that is transforming the used vehicle industry by offering a better way to buy (and sell) used vehicles. Vroom utilizes a vertically integrated, asset-light approach as the company reinvents all phases of the vehicle buying and selling process, from discovery to delivery and everything in between.
My investment thesis is centered around the following points:
- E-commerce remains an inexorable secular growth trend that has decades of growth ahead of it, especially as technologies such as virtual reality and augmented reality become more robust. The coronavirus pandemic has accelerated consumers' use of e-commerce platforms, and the online used-car sales market has experienced these tailwinds too. As the world's digital transformation proceeds further, more people should buy and sell used-cars on e-commerce platforms like Vroom and Carvana.
- As you may know, the used-car market in the United States is worth $840 billion, but to date, it remains highly fragmented. Hence, Vroom's addressable market is ripe for disruption.
- Since consolidation in the used-car retail market is inevitable, Vroom has a good chance of winning significant market share over the next decade. This would result in substantial revenue (and free cash flow) growth.
- Now, Vroom could very well be a multi-bagger, but its current valuations are exorbitant. Hence, I rate Vroom neutral at $58.
Today, we will discuss some of the key aspects of Vroom's business and its market opportunity. Later on, we will analyze the company's financials, carry out a fair-value estimation exercise, and determine expected returns to formulate an investment decision.
COVID-19 Could Prove To Be The Perfect Storm For Auto E-Commerce
Vroom's business model is similar to Carvana minus the car-vending machines. Since I already discussed Carvana's business model in detail in one of my recent notes (shared
Beating the Market: The Time Is Now
There has never been a more important time in stock market history to buy individual stocks at the heart of secular growth trends. Mature market performers/underperformers and index funds simply will not cut it, as we face a decade during which there is absolutely no guarantee the overall markets will rise.
This is why the time is now to discover high-quality businesses with aggressive, visionary management, operating at the heart of secular growth trends.
And these are the stocks that my team and I hunt, discuss, and share with our subscribers!
