E-commerce Growth And AI Will Transform Aftermarket Retail

Key Takeaways

• Technology-driven supply chain, private label expansion, and increased app engagement position CarParts.com for substantial margin and revenue growth exceeding typical market expectations.
  
• Structural shifts in auto aftermarket and digital adoption enable CarParts.com to outpace competitors, expand market share, and achieve sustained above-market performance.
  
• Exposure to tariffs, market shifts to electric vehicles, tougher competition, and OEM control threaten profitability, revenue growth, and CarParts.com's core business sustainability.

Catalysts

Operates as an online retailer of aftermarket auto parts and accessories in the United States and the Philippines.

• Analyst consensus expects growth from higher-margin fee income and an expanding B2B business, but this view understates the transformative potential of CarParts.com's vertically integrated supply chain, automation, and AI-powered inventory management, which together could drive a step-change improvement in net margins and earnings beyond what is widely anticipated.
  
• While analysts broadly agree that growing the mobile app will improve engagement and profitability, current trends suggest an inflection point: with over one million app users and record retention-driven e-commerce, CarParts.com can leverage this channel to drastically increase customer lifetime value and reduce marketing spend, materially boosting both revenue and net margins in a way not yet reflected in market expectations.
  
• The ongoing shift in U.S. vehicle ownership-marked by rising average vehicle age and higher repair frequency-positions CarParts.com for outperformance, as its broad and growing parts assortment makes it the go-to platform for both DIY and DIFM customers, setting the stage for sustained above-market revenue growth.
  
• The company's accelerated expansion into private label and exclusive brands, combined with strict supply chain control and domestic sourcing initiatives, provides pricing power and margin resiliency during economic or tariff volatility, laying the groundwork for long-term gross margin expansion and stronger earnings.
  
• Structural changes in the U.S. auto aftermarket and e-commerce, especially increasing digital adoption among professional repair shops and older demographics, are rapidly enlarging the addressable market, giving CarParts.com an opportunity to capture accelerated market share gains and support a higher revenue growth trajectory than the consensus narrative anticipates.

CarParts.com Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on CarParts.com compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming CarParts.com's revenue will grow by 3.0% annually over the next 3 years.
• Even the bullish analysts are not forecasting that CarParts.com will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate CarParts.com's profit margin will increase from -9.3% to the average US Specialty Retail industry of 4.7% in 3 years.
• If CarParts.com's profit margin were to converge on the industry average, you could expect earnings to reach $30.0 million (and earnings per share of $0.62) by about August 2028, up from $-53.4 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 bullish analyst cohort, the company would need to trade at a PE ratio of 4.4x on those 2028 earnings, up from -0.8x today. This future PE is lower than the current PE for the US Specialty Retail industry at 19.2x.
• Analysts expect the number of shares outstanding to decline by 4.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.07%, as per the Simply Wall St company report.

CarParts.com Future Earnings Per Share Growth

Risks

• The ongoing and increasing impact of tariffs, especially those ranging from 25 percent on Taiwanese-sourced products to up to 75 percent on Chinese imports, drives higher product costs, compressing gross margins and weighing directly on profitability and long-term earnings.
  
• Growing electric vehicle adoption and vehicle technology advancements reduce demand for traditional combustion engine parts which are CarParts.com's core product segment, threatening future revenue streams as the addressable market contracts and shifts away from legacy parts.
  
• The competitive landscape is becoming increasingly distorted by noncompliant, lower-cost parts and the dominance of larger marketplaces such as Amazon, leading to more expensive customer acquisition and declining returns on marketing investments, ultimately squeezing net margins.
  
• The company's product mix remains heavily concentrated in internal combustion engine components, and despite efforts to diversify, slow adaptation to electric and advanced vehicle technologies could result in missed opportunities for future growth and sustained revenue pressure.
  
• Increased direct-to-consumer sales from automakers and tightening control by OEMs over proprietary parts, along with more complex, software-integrated vehicles, limit access to high-demand inventory and make DIY repairs harder, shrinking both revenue potential and market share over the long term.

Valuation

• The assumed bullish price target for CarParts.com is $2.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CarParts.com's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $2.0, and the most bearish reporting a price target of just $0.7.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $631.4 million, earnings will come to $30.0 million, and it would be trading on a PE ratio of 4.4x, assuming you use a discount rate of 11.1%.
  
• Given the current share price of $0.77, the bullish analyst price target of $2.0 is 61.3% higher.
  
• 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.