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Can TrueCar Stock Keep Going After Last Week's 10% Pop?

Image source: TrueCar.

One of last week's biggest winners -- bucking the trend with the general market where the S&P 500 closed lower every single trading day -- was TrueCar (NASDAQ: TRUE). Shares of the provider of car-buying leads for the automotive industry moved 10% higher after posting encouraging financial results for the third quarter. 

TrueCar checked in with $75.1 million in revenue, a mere 4% advance since the prior year but just ahead of where analyst estimates were parked. TrueCar clocked in with an adjusted loss of $0.01 a share, ahead of both the $0.03 a share it delivered a year earlier and the $0.06-a-share shortfall that Wall Street pros were expecting. This is the second quarter in a row that TrueCar posts a substantially smaller deficit than it was initially targeting. 

There was a spike in traffic to TrueCar's platform. The average monthly unique visitors during the quarter increased 15% to 7.6 million since the prior-year period. TrueCar generated leads that resulted in a record 220,633 vehicles being purchased, a 6% year-over-year gain. It may be disheartening to see traffic grow faster than actual leads, suggesting that its conversion rate is slipping. It's also possibly unsettling to see the number of leads growing faster than revenue, rightfully noted since monetization per vehicle has slipped from $324 to $319 over the past year. However, TrueCar's been changing the way it does business in an effort to play nice with showrooms. The important takeaway here is that TrueCar is still growing in popularity, even as it tweaks its business model.

Shifting into a new gear 

Shares of TrueCar have been revving up in recent months. The stock has moved higher in eight of the past nine months, soaring 139% since bottoming out in February. The turnaround was triggered in March when CEO Chip Perry -- who came from the helm of AutoTrader to replace founding CEO Scott Painter a few months earlier -- reinvented the model.  

TrueCar had lost the largest member of its certified dealer network a year earlier, and other showrooms were not pleased with the amount of local sales data that it was making public in an effort to negotiate prices on a dealer's remaining inventory. The new model is more showroom-friendly without alienating potential car buyers. Growth these days may not be as great as it used to be, but it's still driving in the right direction.

Wall Street liked TrueCar's report last week. Loop Capital analyst Blake Harper upgraded the stock to buy, raising his price target from $11 to $12. Harper is encouraged by the upside given the dealer-friendly makeover it initiated earlier this year. Craig-Hallum's Steve Dyer also boosted his rating to buy, raising his price goal from $11 to $14. Dyer appreciates the trend where revenue and EBITDA have outperformed expectations in each of this year's first three quarters. He sees TrueCar continuing to gain market share. 

Stephens analyst Kyle Evans also upgraded the stock to overweight, mirroring Dyer's move in increasing his price target from $11 to $14. Evans is encouraged by the solid third quarter and the preliminary read on next year calling for double-digit top-line growth.

TrueCar may have been out of favor when it was waffling about in the mid single digits earlier this year, but another strong quarter and three analysts upgrades later, it's clearly moving in the right direction.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends TrueCar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.