3 Reasons Why Bullish Unusual Options Volume for Cars.com (CARS) Makes Sense

Intuitively, auto classified ads platform Cars.com (CARS) might not be the most sensible option for long-side investors. With the Federal Reserve committed to tackling historically high inflation, consumer sentiment – particularly for big-ticket items – fell significantly. On paper, this framework shouldn’t bode well for CARS stock.

© Provided by Barchart

Adding to the pensiveness, enterprises listed in the broader automotive retail sector have struggled badly. For instance, shares of Carvana (CVNA) hemorrhaged 92% during the trailing year. Adding to the misery, we have Vroom (VRM), which fell almost an equally alarming 82.56% during the same period. Both specialize in used-car delivery services.

Load Error

Moreover, Cars.com’s latest fourth-quarter earnings report doesn’t provide a perfectly positive view. For instance, Zacks Equity Research pointed out that the enterprise delivered earnings per share of 15 cents, missing the consensus target of 19 cents. To be fair, the company posted revenue of $168.2 million, beating out the forecast calling for $166.2 million.

Still, a mixed-bag report usually doesn’t bring home the bacon – unless we’re talking about CARS stock. Here, shares jumped over 41% since the January opener. And in the trailing year, CARS is up 31%.

If that wasn’t enough of a headscratcher, CARS stock also made up the ranks of Barchart.com’s screener for unusual stock options volume. Specifically, volume reached 2,988 contracts against an open interest reading of 17,675. Further, the delta between the Thursday session volume and the trailing one-month volume came out to 836.68%.

Moreover, call volume hit 2,533 contracts while put volume was only 455. Therefore, the put/call volume ratio came out to 0.18, significantly favoring the bulls by the numbers. Though it might seem counterintuitive to the fundamentals, CARS stock could rise higher yet. Here are three reasons why.

Aging Vehicles Translates to Higher Demand for CARS Stock

In 2022, research conducted by S&P Global Mobility – and which was subsequently reported by the Wall Street Journal – revealed that the average age of U.S. vehicles hit a new record of 12.2 years in the prior year. Further, it marked the fifth consecutive year of increase in this critical metric.

To be fair, this dynamic doesn’t represent a holistically positive catalyst for CARS stock. After all, what this stat demonstrates is weakness in the consumer economy. If households at large felt comfortable in upgrading their rides, they probably would have done it by now.

At the same time, the framework does present a cynical tailwind for CARS stock and the broader auto retail industry. Essentially, it doesn’t matter what’s transpiring in the economy. Once a car breaks down, it often needs to be replaced because it’s so vital for mobility.

Naturally, with cars on the roadways already pushing their viability, we should see an increase in auto sales. Ultimately, that’s great news for CARS stock.

The EV Revolution Will Have to Wait

Immediately, one of the challenges for the used-car market centers on the fading relevance of combustion-powered vehicles. With political, ideological and environmental forces combining to influence the masses, the clock’s ticking on fossil-fuel-based transportation and mobility. Yet it’s also an hourglass with plenty of sand.

While much is made of electric vehicles taking over U.S. and global roadways, the facts on the ground suggest that the pace of conquest may be much slower than initially anticipated. True, EVs are improving, providing greater range and capabilities at a better value-for-dollar proposition. However, combustion cars are also improving, which is a matter that doesn’t get discussed as much.

In addition, not everyone has access to home charging, which crimps conveniences for many modest-income households. According to government data, about 63% of all U.S. occupied housing units have a garage. Setting aside apartment complexes that could install charging units, that still leaves plenty of folks without access to home charging.

In other words, combustion cars will be relevant for a long time. And that bodes well for the underlying platform of CARS stock.

Analysts Favor Cars.com

When assessing the viability of any investment, one needs to conduct comprehensive due diligence, not just listen to the popular opinion of the moment. However, differing opinions may allow you to consider elements you might not have thought about otherwise.

Here, Wall Street analysts can be invaluable because of their education, experience and expertise. Further, if a consensus of these experts agrees on a particular investment, such a circumstance would be difficult to ignore.

And that’s exactly what we have with CARS stock. According to Barchart.com, the underlying enterprise enjoys a unanimous strong buy assessment from five analysts. In the prior month, CARS enjoyed a near unanimous rating with one holdout with a “hold” view. That expert is gone, leaving a sentiment profile full of green lights.

Finally, data from TipRanks reveals that the average price target for CARS stock is $24, implying upside potential of nearly 23%. With all that’s transpired, that would be quite a remarkable feat.

More Stock Market News from Barchart

Stocks End Higher on Nvidia and Lower Bond Yields

Is Dr. Copper Advising Other Markets to get Vaccinated?

Warner Bros Discovery Rebounds on the Company’s Cost-Cutting Plans

This Company Is Flashing A 100% Buy And Is Highly Recommended By Analysts

On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Continue Reading