Rising Costs And Urban Shifts Will Erode Profitability

Key Takeaways

• Shrinking car ownership, electric vehicles, and self-cleaning tech threaten Mister Car Wash's long-term market and recurring revenue growth.
  
• Labor shortages, rising wages, and stricter environmental rules will further erode profitability and limit future expansion.
  
• Subscription-driven revenue stability, successful price hikes, eased competition, operational improvements, and a stronger balance sheet position Mister Car Wash for resilient growth and profitability.

Catalysts

Provides conveyorized car wash services in the United States.

• The rise of urbanization, increased ride-sharing, and changing consumer attitudes among younger generations are putting long-term downward pressure on car ownership in the U.S., which will steadily erode Mister Car Wash's total addressable market and cap organic revenue growth, even as the company aggressively expands its store base.
  
• With electric vehicle adoption accelerating and automakers increasingly incorporating self-cleaning technologies and lower-maintenance materials, demand for traditional car wash services is at risk of secular decline, threatening the company's ability to sustain both membership growth and maintenance of per-customer revenue.
  
• Over-reliance on subscription-based unlimited wash memberships exposes Mister Car Wash to market saturation and increasing churn, as evidenced by the sharp uptick in churn following recent base price increases; as incremental growth slows and price elasticity rises, this will constrain recurring revenue growth and pressure net margins.
  
• Industry-wide labor shortages and intensifying wage pressures within the consumer services sector are likely to drive up operating expenses over time, compressing already challenged EBITDA and net profit margins, as the impact of past labor optimization plateaus and further efficiency gains wane.
  
• Ongoing and anticipated tightening of water-use and environmental regulations are set to increase compliance costs, raise capital requirements for new store builds, and may even restrict operations regionally, weighing on Mister Car Wash's long-term profitability and free cash flow growth.

Mister Car Wash Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mister Car Wash compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mister Car Wash's revenue will grow by 6.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.9% today to 12.3% in 3 years time.
• The bearish analysts expect earnings to reach $153.1 million (and earnings per share of $0.45) by about July 2028, up from $80.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, down from 26.2x today. This future PE is lower than the current PE for the US Consumer Services industry at 19.3x.
• Analysts expect the number of shares outstanding to grow by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Mister Car Wash Future Earnings Per Share Growth

Risks

• Mister Car Wash is seeing strong and accelerating growth in its subscription model, with Unlimited Wash Club (UWC) membership up 5% year-over-year to over 2.2 million members and 73% of wash sales coming from subscriptions, which creates a durable and predictable revenue base even in volatile consumer environments.
  
• The company is successfully executing price increases, notably raising its base UWC program price in most markets for the first time since inception while maintaining steady membership mix and only experiencing a temporary, immaterial uptick in churn, signaling significant pricing power and the potential to support net revenue and margin expansion.
  
• Industry competition appears to be rationalizing, with the rate of new competitor builds within Mister Car Wash's key trade areas dropping substantially from 33 in Q1 2023 to just 7 in Q1 2025, reducing pressure on market share and limiting risk to comp store sales, which positions the company favorably for continued growth and margin stability.
  
• Technological innovation, new product launches like Titanium 360, and continued investment in operational efficiency are driving growth in both revenue per member (up approximately 6%) and EBITDA margin (up 130 basis points to 32.7%), improving overall profitability over time.
  
• The company's balance sheet is strengthening, as demonstrated by voluntary debt paydown and a projected net leverage ratio falling below 2.5 times adjusted EBITDA, which increases its flexibility to self-fund growth, pursue opportunistic M&A, and withstand cyclical headwinds, ultimately supporting earnings resilience.

Valuation

• The assumed bearish price target for Mister Car Wash is $6.8, which represents two standard deviations below the consensus price target of $9.38. This valuation is based on what can be assumed as the expectations of Mister Car Wash's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.0, and the most bearish reporting a price target of just $6.25.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $153.1 million, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $6.49, the bearish analyst price target of $6.8 is 4.5% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.