CarGurus (CARG): Examining Valuation Following Strong Q3 Results and Upbeat Growth Outlook

CarGurus (CARG) delivered stronger-than-expected third-quarter results, with both revenue and profit coming in above forecasts. Marketplace and international revenues climbed by double digits, and net income more than doubled compared to the previous year.

See our latest analysis for CarGurus.

Fresh off its Q3 beat, CarGurus’ share price has gained 12.5% over the past three months as investors responded to robust Marketplace growth, upbeat guidance, and its assertive share buyback program. However, the 1-year total shareholder return is still down 4.2%. Momentum appears to be on the upswing, fueled by product launches and optimism for continued platform expansion.

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With shares rallying after CarGurus’ Q3 earnings beat and upbeat guidance, the big question is whether the recent surge reflects a bargain price or if the market is already factoring in the company’s future growth trajectory.

Most Popular Narrative: 16.1% Undervalued

With CarGurus trading at $33.34 and the most widely followed narrative placing fair value at $39.75, the narrative implies meaningful upside from recent levels. Here is one of the core drivers that shapes this outlook.

"Expansion and deeper adoption of data-driven analytics tools and AI-powered solutions across the dealer base are creating higher engagement, improved retention, and more actionable insights. These developments are expected to drive sustained Marketplace revenue growth and support increasing margins as dealers see measurable ROI and make CarGurus central to their workflow."

Read the complete narrative.

Curious what bold assumptions get CarGurus to this target? One critical variable is a projected acceleration in future margins and profit. Intrigued to see if the forecast is achievable or overly ambitious? The full narrative unpacks the key numbers and surprising growth bets behind this valuation.

Result: Fair Value of $39.75 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, CarGurus still faces challenges, including rising digital competition and unproven long-term growth outside North America. These factors could alter the current outlook.

Find out about the key risks to this CarGurus narrative.

Another View: Market Comparisons Paint a Different Picture

While our first look suggested CarGurus is undervalued, using the common price-to-earnings ratio (20.9x) tells a more cautious story. The stock trades at a higher multiple than both the US Interactive Media and Services industry average (17x) and its peer average (13.3x). However, the fair ratio sits at 21x, which suggests the market is not far off fair value. Does this mean the big upside is already priced in, or is the narrative underestimating future growth?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own CarGurus Narrative

If you see the story differently or want to dig into the numbers yourself, it only takes a few minutes to build your own perspective. Do it your way

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding CarGurus.

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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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