Are Shares of CarGurus at a Good Entry Point After Recent Price Volatility in 2025?

If you are sizing up whether to buy, hold, or sell CarGurus, you are definitely not alone. With the stock up a striking 152.8% over the past three years and 67.5% over five years, it has rewarded investors willing to ride out some wild turns. Yet, recent performance tells a different story, with the share price sliding 4.6% in the last week and pacing down 1.8% over the past month. Even since the start of the year, CarGurus has dipped by 0.6%, suggesting the market’s outlook has shifted, or perhaps it is taking a collective breath after such a strong run.

Much of this volatility can be traced back to market sentiment in the tech and automotive industries, as well as growing interest in digital marketplaces. CarGurus has benefited from the broader transition to online car shopping, and shifting consumer habits continue to play a role in how investors price future growth and risk. Right now, a valuation score of 2 out of 6 tells us that by some methods, CarGurus appears undervalued, but the company does not check every box for a deep discount.

So, how do the big valuation approaches stack up for CarGurus, and how much weight should investors really put on them? Stick around as we break down these strategies, and at the end, explore an even sharper lens you can use to assess what this stock is truly worth.

CarGurus scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: CarGurus Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and then discounting those amounts back to the present day. This approach is especially useful for assessing whether a fast-evolving business like CarGurus is being under- or over-valued based on its fundamental ability to generate cash.

CarGurus currently reports annual Free Cash Flow (FCF) of $223.7 million. Analysts expect strong growth in the coming years, projecting FCF to reach $258.5 million in 2026 and $600.5 million by 2029. For the later years, forecasts from Simply Wall St extrapolate continued gains, with FCF potentially climbing to around $798.6 million by 2035.

Applying the 2 Stage Free Cash Flow to Equity model, the DCF analysis estimates an intrinsic value of $117.01 per share, using all cash flows denominated in US dollars. This suggests the current share price is 69.7 percent below its fair value according to this model, implying a significant level of undervaluation.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for CarGurus.

Our Discounted Cash Flow (DCF) analysis suggests CarGurus is undervalued by 69.7%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: CarGurus Price vs Earnings

For profitable companies like CarGurus, the Price-to-Earnings (PE) ratio is a widely used metric to gauge valuation. It reflects how much investors are willing to pay today for a dollar of the company’s current earnings. A higher PE can indicate optimism about future growth, while a lower PE may flag caution or lower expectations.

What constitutes a "normal" or "fair" PE ratio depends on various factors, including the company’s expected earnings growth, risk profile, and broader economic or industry trends. Fast-growing tech companies often command higher PEs to reflect anticipated expansion, whereas businesses with more predictable but slower growth trends typically trade at lower PEs.

Currently, CarGurus is trading at a PE of 27.15x. For context, this sits noticeably above both the Interactive Media and Services industry average of 17.05x and the peer group average of 16.02x. At first glance, this might make CarGurus appear overvalued relative to its direct competitors and its sector. However, Simply Wall St calculates a “Fair Ratio” of 23.74x for CarGurus, which is derived from a proprietary model that goes beyond simple averages. This Fair Ratio incorporates factors such as the company’s forecasted earnings growth, profit margins, risk exposures, market capitalization, and its industry context.

The advantage of using the Fair Ratio is that it offers a more holistic view, reflecting not just where CarGurus stands compared to peers, but what multiple truly aligns with its unique fundamentals and prospects. With CarGurus’ actual PE at 27.15x compared to a Fair Ratio of 23.74x, the stock appears modestly overvalued against its fundamentals, though not by a dramatic margin.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your CarGurus Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a clear, story-based perspective you can build about a company, connecting what you believe about CarGurus’ business, recent developments, and future prospects to your own financial assumptions and an estimated fair value. Instead of just relying on ratios and models, Narratives let you factor in your view of CarGurus’ growth drivers, competitive threats, and changing market dynamics, making your investment decision more personal and informed.

On the Simply Wall St platform, Narratives are easy to create and available on the Community page, where millions of investors share and update their outlooks as new news or earnings arrive. This means your analysis automatically stays relevant. By comparing each Narrative’s Fair Value with the current price, you can quickly decide whether you think CarGurus fits your investment criteria, based on your understanding of the company's story and your expectations for its future performance.

For example, some investors see strong opportunities from CarGurus' focus on AI analytics and global expansion, which leads to price targets as high as $44. Others are more cautious about digital competition and shifting industry trends, resulting in a fair value closer to $33.

Do you think there's more to the story for CarGurus? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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