Breaking Down CarParts.com Stock

At the risk of sounding insensitive, the coronavirus outbreak may have been the best thing that has ever happened to California-based CarParts.com (NASDAQ:PRTS). Look no further than the company's stock chart. After treading water for the better part of the last 15 years, CarParts.com shareholders have witnessed some major repair work done to its damaged stock.

While there are plenty of companies that have benefitted from pandemic-related tailwinds, few have received the fuel injection that CarParts.com has. Let's take a closer look under the hood.

 What is Driving the Turnaround at CarParts.com?

At this point, it's no secret that e-commerce companies across many industries have thrived during the pandemic. CarParts.com is one online storefront that has seen some serious traffic.

In the highly competitive automotive part industry that includes major players like O'Reilly Automotive, Advance Auto Parts, and Pep Boys, CarParts.com has managed to hang with the big dogs. How? It has created a unique factory-to-consumer shopping outlet for car owners of all types cutting out the middleman—and cutting costs for customers.

Demand for CarParts.com one million-plus products has surged since the start of the pandemic. As Americans shied away from public transportation, getting the most out of their cars became a priority. While CarParts.com competitors struggled with supply chain constraints and dealerships were forced to close, many people turned to the online retailer as a quick way to get the new parts they needed.

This convenience recently became an even greater convenience. Last quarter CarParts.com opened a new distribution center in Grand Prairie, Texas that will enable it to deliver to all U.S. customers within two days and most within 24-hours.

With brick-and-mortar retailers closed during the early part of the pandemic, awareness of CarParts.com spread like wildfire. Today, car owners don't think twice about buying exterior and interior car parts online and CarParts.com is a a go-to site due its fast shipping and generous 90-day return policy.

Also running hot have been the company's financial performances. Sales were up 61% and 69% in the second and third quarters, respectively. Last quarter gross profit hit a record $43.1 million thanks to a significantly expanded margin—and the company swung to a profit.

How were CarParts.com's Fourth Quarter Results?

On March 8^th, CarParts.com reported fourth-quarter results that showed the good times are still rolling. Revenue surged 90% to a record $119.7 million in the period and was up 58% to $443.9 million for the full year. Although gross profit nearly doubled to $41.6 million in Q4, the bottom line showed a net loss of $3.5 million.

The bottom-line result wasn't unexpected given the outlays associated with the new distribution center. Eventually these costs will be well worth it as the Texas site starts bringing in revenue and gives CarParts.com a strategically advantageous central U.S. hub.

Aside from ongoing strength in the core CarPart.com business, growth in high margin in-house brands along with favorable product and channel mixes were positives in the fourth quarter.

Going forward, a big part of CarParts.com strategy will be to capitalize on growth in electrical vehicles (EV) and hybrid vehicles. Management noted plans to expand its selection of EV and hybrid car parts as these markets develop.

 Is it too Late to Buy CarParts.com Stock?

Long a speculative member of the penny stock world, CarParts.com shares skyrocketed from roughly $1 in March 2020 to more than $23 last month. After being pulled down by broader market weakness the small cap stock sits more than 30% off its recent peak. Is it a good time to buy?

The recent downturn has been in relatively low volume especially compared to the January 26^thspike that drove CarParts.com to its all-time high. This bodes well for a return to the $20-plus range.

So too does a bullish continuation diamond pattern that formed on the weekly chart in late-January 2021. The pattern pointed to a possible run to the $23 to $26 range by mid-summer. The stock reached $23 well ahead of schedule but with the pattern still active, the mid-$20's look quite credible.

All six sell-side analysts that cover CarParts.com have 'buy' ratings. Last month, Craig Hallum gave the stock a Street-high $28 price target which suggests more than 70% upside from here.

Fundamentally, CarParts.com also has a lot going for it. In the wake of another solid quarterly report, the company appears to be in the driver seat of a secular shift in auto parts purchasing to online channels. As the popularity of its direct-to-consumer model persists, expect CarParts.com stock to shift back into high gear.