Investing

Here's Why Digital Auto Marketplace TrueCar Faces a Tough Economic Backdrop

Joshua Enomoto

Published: May 10, 2023 3:09 am

Last Updated: May 10, 2023 12:01 pm

Struggling against a tough economic backdrop, shares of leading digital automotive marketplace TrueCar (US:TRUE) suffered a sharp loss on Tuesday.

Coming off the back of its first quarter of 2023 earnings report, the enterprise — which connects car buyers with certified dealers — attempts to recover against a broader consumer headwind. As a result, TRUE stock risks falling into negative territory for the year.

Presently, shares are up 1.58% against the January opener, a precarious position to be in given the underlying Q1 results. On the top line, revenue came in at $37 million, down 15% from the $43.5 million posted in the year-ago quarter. Further, adjusted EBITDA landed at $11.3 million below zero, expanding from a loss of $6.3 million in Q1 2022.

On the positive front, average monthly unique visitors hit 8.7 million, up 19% from the 7.3 million posted in Q1 last year. As well, the overall revenue trend appears to be stabilizing (albeit at a comparative low point), with Q4 2022 sales coming at $36.7 million.

Unusual Options

That appears to have been enough for certain market speculators. According to Fintel’s screener for unusual stock options volume, following the close of the May 9 session, call volume hit 391 contracts against put volume of 49. In contrast, the average call volume for TRUE stock is 4 contracts while the average put volume is only 2 contracts.

However, the good news fades from there. Presently, the put/call ratio for TRUE stock stands at 79.36. Since puts (the numerator in this pairing) generally represent bearish bets, put/call ratios greater than 1 indicate bearish sentiment.

Economy Headwind

Perhaps most worryingly for long-term shareholders, TRUE stock faces a significant consumer economy headwind. According to TrueCar’s Q1 stockholder letter, the average new vehicle list price on the TrueCar platform hit $50,129 in March 2023. This price point represents a 10.3% increase on a year-over-year basis. Moreover, the figure comes out to a 37.8% rise from March 2021’s average price of $36,369.

Unfortunately, such a cost acceleration to the consumer greatly outpaces average wage growth.

According to data from the U.S. Bureau of Labor Statistics, the average hourly earnings of all employees stood at $33.20 in March 2023. Two years prior, this stat was $30.05. In other words, average wage growth only increased about 10.5%.

If that wasn’t enough, the growing layoffs both in the technology sector and increasingly in other industries may crimp broader purchasing power. Therefore, investors likely need to approach TRUE stock with a cautionary mindset, irrespective of some bullish indicators in the derivatives market.

Analysts remain positive on TRUE stock. Recommendation trends (below) tracked by Fintel show sentiment biased on the ‘strong buy’ or ‘buy’ end of the spectrum for a sixth-consecutive month.

This article originally appeared on Fintel