CarLotz Inc: Beaten-Up, Cash-Rich, Cheap E-Commerce Play Could Return 415%

Why LOTZ Stock Is Ideal to Play the Auto Supply Chain Issues

Tariffs and the COVID-19 pandemic have led to significant disruptions to the global supply chain. This has adversely impacted numerous industries, including the new vehicle industry. While the situation has been improving, bottlenecks remain.

That means customers must either wait for their preferred new vehicle to be available or buy a used vehicle instead. The latter has proven to be beneficial to CarLotz Inc (NASDAQ:LOTZ), a company that provides a fully integrated e-commerce platform for buying and selling used vehicles.

But while the company has been delivering significant revenue growth, LOTZ stock has plummeted by 80% since trading at a high of $12.90 in January.

The selling has been so excessive that, at the current price of CarLotz stock, the market values the company’s non-cash assets at only $85.0 million. (Source: “CarLotz, Inc. (LOTZ),” Yahoo! Finance, last accessed December 21, 2021.)

With $165.0 million ($1.45 per share) in net cash and a current market price of $2.50, the downside risk with LOTZ stock appears to be extremely limited.

There are strong tailwinds for companies like CarLotz Inc.

Americans bought 39.4 million used vehicles in 2018, more than double the 17.3 million new vehicles sold in the U.S. that year. (Source: “Used Cars, New Platforms: Accelerating Sales in a Digitally Disrupted Market,” McKinsey & Company, June 6, 2019.)

The amazing thing is that these results were prior to the pandemic and supply chain issues. McKinsey & Company estimates that used vehicle sales will grow faster than new vehicles to 2023.

Chart Shows Potential Move of 415% by CarLotz Stock

LOTZ stock has been caught in a nasty downward channel for the entirety of 2021. CarLotz stock made several attempts to break out, but nothing materialized.

As I said earlier, the selling has been excessive, as if the company was heading toward bankruptcy and making no financial growth.

But that’s not the case. CarLotz Inc has $165.0 million in net cash and a market cap of $285.0 million. Analysts estimate that the company’s revenues will grow by 99.1% to $236.2 million in 2021 and by 108.4% to $492.3 million in 2022. (Source: Yahoo! Finance, op. cit.)

The below chart shows big upside for LOTZ stock after the selling. In my view, CarLotz stock is ideal for contrarian investors who, like me, believe the selling was excessive.

In the immediate term, LOTZ stock needs to find oversold buying support.

The Fibonacci retracement lines point to massive potential. CarLotz stock could target an upside move of 155% to $6.39. And that’s just the start. Above that level is resistance at $7.83, $8.88, and $12.90, for a potential return of 415%.

Chart courtesy of StockCharts.com

Analyst Take

CarLotz Inc is supported by a strong valuation. At the current price of LOTZ stock, the company trades at 1.2 times its consensus 2021 revenue estimate and at a cheap 0.6 times its consensus 2022 revenue estimate.

Add in net cash, and CarLotz Inc trades at an inexpensive 1.7 times its current enterprise value.

So, whether you look at CarLotz stock from a technical or fundamental view, it appears to be worth considering by contrarian investors.