When a company wants to refresh its car fleet, the first it must do is get rid of the cars it already has, and make some room in the corporate parking lot. Historically, this happens on one of two ways: First, the company puts its cars through an auto auction, or sells them in bulk to a wholesaler. Then, a retailer buys those cars at wholesale prices. Finally, the retailer spiffs them up, marks them up, and sells them to you, the consumer.
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But are all three steps really necessary?
That’s the question CarLotz, Inc. (LOTZ) asked when it set up shop a year ago (And its answer was “no”). Instead, CarLotz built a consignment-to-retail business in which “corporate vehicle sourcing partners” (fleet leasing companies, rental car companies, banks, and other corporations often found in possession of large numbers of cars that they want to unload quickly), hand their inventory over to CarLotz. Then CarLotz does any necessary reconditioning itself, and sells the cars directly to consumers, collecting fees worth between $1200 and $1700 on each vehicle sold.
Barrington analyst Gary Prestopino points out that CarLotz is “the only” company taking such a consignment-to-retail approach to car buying in the United States. As the analyst explained, CarLotz’s business model “disintermediates wholesalers, wholesale auctions and dealers … while offering retail customers an omni-channel experience for vehicle purchases.” In simpler terms, CarLotz cuts out the middle man, and permits car buyers to buy more or less directly from corporate fleets that are looking to unload their old cars — with sales conducted either in-person or online.
In so doing, notes Prestopino, CarLotz is able to pay its corporate clients “on average $1,000 more per unit” sold, while saving consumers $500 to $1,000 on cars they buy, relative to the prices charged by traditional used car businesses.
You can see how that would be an attractive proposition to both sides of the equation. And indeed, it’s turning out that way. From 2017 through 2020, CarLotz’s revenues surged nearly three-fold in size, to just under $119 million. The company isn’t yet profitable, but its losses did fall by half between 2019 and 2020. And CarLotz is continuing to grow, with Prestopino noting the company plans to open 14 to 16 sales “hubs” (combining reconditioning facilities, consignment centers, and showrooms) in 2021, and more than 40 by the end of 2023 — versus just 10 hubs that it has at present.
Even then, that probably won’t be the end of this growth story. By 2023, Prestopino projects that CarLotz will be moving metal at the rate of 80,000 units per year. That would be almost 13x the amount of business it is doing today — but still only by about 1.1% of total corporate fleet resales that year. And this implies that after quadrupling over the next three years, there will be still the potential to grow nearly another 100x in size.
So … how much is this opportunity worth?
Rating CarLotz stock “outperform,” Prestopino sees the stock surging from its current share price of $8 to $22 over the course of the next year. This leaves room for a 175% upside potential (To watch Prestopino’s track record, click here)
CarLotz summed up , “We believe that CarLotz offers a compelling value proposition for both vehicle buyers and sellers offering a transformation growth opportunity in used vehicle retailing with a business model that is disintermediating traditional means of used vehicle remarketing. The company is rolling out a national presence to drive a network effect that should enhance shareholder value on a long-term basis.”
Judging from the consensus breakdown, it has been relatively quiet when it comes to other analyst activity. Over the last three months, only 2 analysts have reviewed LOTZ. Both of which, however, were bullish, making the consensus a Moderate Buy. On top of this, the $22 average price target puts the upside potential at 178%. (See LOTZ stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
