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Why CarLotz Stock Looks Attractive Right Now

Jan. 04, 2022 11:22 AM ETShift Technologies, Inc. (SFTGQ)AN, CVNA, KMX, VRM72 Comments
RCK Analytics profile picture
RCK Analytics


  • In Q3 2021, net revenue of the company increased by 128% to $68 million.
  • Net losses increased to $3.5 million in the Q3 from $0.5 million in the year ago quarter.
  • The company has opened 14 new hubs in 2021 to reach a cumulative number of 22 hubs.
  • The new hubs are not generating results as expected and the pandemic has adversely affected the business.
  • The company offers a digital and hassle-free process for its retail buyers, including a whole range of services like financing, insurance, and extended warranties.

Used Car Dealership

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Investment Thesis

CarLotz (LOTZ) is increasing its revenue and opening new hubs. As and when the retail-wholesale pricing environment becomes more favorable for CarLotz, the company should do well. The company aims to return to mainly consignment business model as the

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RCK Analytics profile picture
We provide end-to-end financial research services across asset classes. We are passionate about stocks and investments. We take pride in providing invaluable investing insights in an easy-to-understand way. .Chandan Khandelwal leads RCK, as its co-founder & CEO. He is a Chartered Accountant and Financial Consultant with more than 15 years of experience in Finance, Stock Market, Assurance and Business Advisory.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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Comments (72)

This article was published on January 4th. The day the stock market hit its all time high and thereafter began its slide to where we are now. Regrettably, that period has not been kind to money losing growth stocks in general (Carvana and Shift are examples in the used car sector) and LOTZ in particular.

I learned in 2000/2001 by getting my ass kicked in the web portal sector. A new crop of investors has learned a similarly costly lesson.

Learn from this debacle as best you can. Be more circumspect next time. GLTA.
Weather Man profile picture
Unfortunately, between chips, supply lines and the Green EV insanity, the shortage of new inventory looks to continue for longer than LOTZ would care for. Just no reasonable timeline for them to make good money justifying a higher share price.
In fairness to the author this article was published on Jan. 4 the day the S&P hit its all time high. A little bit has changed since then to say the least.
Do you still consider Carlotz a buy even though has lost virtually every cent of its value?
The company has no debt and is now trading well below NAV. Seems like a decent play at these levels considering cash burn has slowed considerably quarter over quarter. In Q3 cash on hand was 201.2M and in Q4 they had 195.9M.
Every comment I've made on this article has been proven true. I don't bat 100 but I nailed this one.
@DavidHHolmes Yep, you called it. This is most likely a zero unless they turn around FAST. Their burn rate is out of control.
@Bangback I am not short. This situation brings me no joy. Major layoffs in the works. With no new hubs added it isn't possible to grow themselves out of this problem situation. Read about my sale hypothesis. That's their only chance. Get acquired by a partner that can feed them product (cars). Sell ASAP.
Maschuette profile picture
@Bangback going off memory, their cash burn seems to be slowing down quarter/quarter. They had about 200 million last quarter a d now they are at 193 million. And now they are reducing expansion to preserve cash at the same time their revenue has been increasing. This thing aint going to zero.
How about now….LOL!
Heads up...an unmitigated disaster was just announced.
Weather Man profile picture
Q4 conference call seems late.
@Weather Man As you saw it will be after the market closes on March 15th. That is the last permissible day under SEC rules for U.S. domiciled filers with a December 31st fiscal year end. I guess they just need the time.
Does anyone know if the Adesa acquisition by Carvana will affect LOTZ?
Weather Man profile picture
Well, looks like bargain hunters are on the prowl. The used car market is tough, so really hoping the next quarterly call is solid, confident and coherent.
Market cap of $200 million is equal to cash on hand at 9/30.
George Spritzer, CFA profile picture
@DavidHHolmes Do you think CZOO could be a potential acquirer of LOTZ? They have been buying up companies in Europe, but they may not have enough bandwidth to expand to the US yet.
@George Spritzer, CFA Let me do some research before I can provide a thoughtful reply.
dnara profile picture
27 Jan. 2022
@George Spritzer, CFA Cazoo seems focused only on Europe but I agree - if they look to grow a presence in the US, it's hard to ignore the low cost of LOTZ now. All in all, based on the success of CVNA, I think this model is here to stay and will only grow. I think there's great value in SFT and VRM too. I would like to see LOTZ look at what CZOO is doing in terms of subscription car services...it's a nice additional vertical and I think is another model that will continue to grow in the urban areas where LOTZ has set up hubs.
Looks even better now than it is under $2. All I can say is there will be a lot of people in 2025 saying if only I had bought this when it was under $2. So much irrational panic selling right now, but it's creating so many extreme bargains.
Broke $2.
Weather Man profile picture
Gonna be ugly until the car makes get supply lines fixed and production rolling. So damn tempted to add to my position.
@Weather Man A little nibble at $2 is a good bet.
bazooooka profile picture
@Weather Man the problem is sourcing cheap/good used cars is more competitive then they every imagined. Any half decent used car more likely to end up on an online platform and not at auction or trade-in like it was yester-year. CarLotz will have to find attractive used car supply lines asap or continue to melt. It's worth a nibble below two bucks but anyone that took a big bite earlier likely not happy.
I've been thinking about the LOTZ situation. If I was an M&A banker and I was advising LOTZ (yes formerly and no I'm not) I'd propose they find a merger partner ASAP. LOTZ's greatest asset in a merger is its $200M of cash that is diminishing every month. If they wait a year, and the business is still unprofitable, they'll have no negotiating leverage whatsoever. Now they have the cash and the projections that they can use that show the business will turn a profit in 4 to 6 quarters.

As to merger candidates, ideally they need to partner with a used car seller that doesn't have a bricks and mortar presence. That means forget about the likes of Carmax or Carvana. It isn't feasible to retrofit the LOTZ stores to either of their models for obvious reasons. I'd lead with SFT, VRM, CARS and CARG.

An outside the box idea is their biggest supplier KAR which has experience in physical retail through its auction businesses. I guess I'd also throw in PAG and the public new car sellers...LAD, GPI, AN, ABG, etc.

Just some thoughts from a former auto banker.
Maschuette profile picture
@DavidHHolmes What price do you think they would get if they put a deal together in the short term?
@Maschuette Not a perfect analogy but I note the MetroMile (MILE) / Lemonade (LMND) pending merger. MILE is a failed SPAC like LOTZ and with coincidently approximately $200 million of cash and losing similar amounts per quarter. It's a stock deal at 1 for 19 so at the time of announcement LMND was trading at aprroximately $65 so each MILE share was worth $3.40ish. MILE was trading around $3 so say a 10 to 15 percent premium. I note the problem with a stock deal is that the LMND stock has collapsed so MILE is trading at $1.65 today.

Honestly, LOTZ is worth cash plus a little bit for the build out to date so maybe $2.50 to $3. Not what many shareholders would hope to hear but you do get a play on the merged company. Some of the prospective acquirors I mentioned have proven business models and bright futures.

Just my 2 cents.
Maschuette profile picture
@DavidHHolmes I appreciate your two cents. My cost basis is 3.33 but the options market is pretty good for LOTZ. I'm selling covered calls for a nice return while I wait for something to happen. I'm hoping the consignment market improves for them over the next quarter or so. If they can reduce their cash burn then all their options will improve. We will see.
Weather Man profile picture
Damnit, I thought $2.29 was as cheap as I was gonna get in at!
cssys profile picture
the chart looks like death...
@cssys Check the FINRA short reports twice a month.

the company itself is doing fine and have been increasing sales quarter over quarter......the reason for the price action is the hsort position getting bigger ad bigger.

I have 45,000 shares with a $3.37.....i have zero interest in selling and every time it drops 10c i buy another 1,000 shares. This will be $4 after the quarterly call in a few weeks when they announce 3,000 cars sold in Q4 (we know this from the VIN scraper) and pretty much a break even qtr (or within a few cents).

until the shorts reduce their position (around 6,500,000 shares sold short) im not worried that the price isnt going up - if they cover their short positions to less than 2m shares and im still not in profit.....then i'll worry.

until then.....its discount shopping day.
The key difference between Carlotz and the other second hand car platforms is their consignment model. This model is interesting mostly because of it enables Carlotz to make money selling from cars which are not on their balance sheet. This means (much) less investment capital needed, a high inventory turnover and less obsolescence risk. It does still incur costs to prepare cars for selling.

This model has been proven in the past in a very small size in a stable market (with one mayor consignment partner). Last year it shown that this is risky, when prices of second-hand cars are unstable. This company has faced headwinds in the early stages of expanding during 2021, due to the chip shortage and subsequent second hand car prices increases. However, the company has shown recovery on consignment supply side (new consignments partners, returned consignment partner) while it kept investing on demand side (new hub openings, marketing, IT development). Having a bigger name with more hubs, could potentially further increase the number of interested consignment partners and increase the interest from customers. Therefore I am very interested in what Q4 21 and Q1 22 will look like.
Ondrocs4, CPA profile picture
@Michielll I might be wrong but I think they charge $99 to inspect and prep each vehicle.
Weather Man profile picture
Until dealerships have new inventory on the lot, gonna be tough sledding for any company trying to sell used. I picked up some LOTZ, but it may be close to a year before things improve and maybe closer to 1.5 years.
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