VRM - Deeply Negative Sentiment Surrounding Vroom Is Overstated
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- The investing community seems to despise Vroom (VRM) stock now.
- There are undeniably negative data points to consider, but don’t ignore the bright spots.
- Investors should consider their risk tolerance, and possibly take a small stock position in Vroom.
Based in New York, digital car-buying platform Vroom (NASDAQ:VRM) is definitely not a darling on Wall Street. Look around, and you’ll likely have a tough time finding optimistic calls on VRM stock.
Some folks will say that the trend is your friend, and therefore an investment in Vroom should be avoided at all costs. There may be merit to this argument, I’ll grant.
Yet, there are at least two sides to every issue. Contrarian investors and value hunters might look at VRM stock and see a rare buying opportunity instead of a toxic asset.
So, is it time for Vroom to zoom, or do more problems loom? Let’s see if there’s any gas left in the tank, as the shareholders may be in for a bumpy ride.
VRMVroom$3.07What’s Happening With VRM Stock?
Believe it or not, Vroom went public at $22 per share, and VRM stock closed up 118% on its first day of trading.
That was back in the summer of 2020. Meme-stock mania hadn’t taken hold yet, but some initial public offering (IPO) stocks were getting pumped – and unfortunately, some of those stocks would also get dumped.
Thus, VRM stock fell like a rock over the ensuing months and years. The stockholders haven’t gotten any relief in 2022 so far, as the Vroom share price started the year at $11 and then plunged to $3.
Besides the unwinding of IPO hype, the decline in the value of Vroom shares can probably be attributed to a number of factors. Among them are supply-chain constraints and labor shortages. Soaring used-vehicle prices are also an issue, as they may deter some potential buyers.
In light of these negative factors, it’s understandable if some Wall Street analysts are feeling dour about VRM stock. As InvestorPlace contributor Shrey Dua pointed out, analysts from Wells Fargo (NYSE:WFC) and Truist Securities downgraded their ratings on Vroom shares not long ago.
A Popular Platform
Given those downgrades, you might be tempted to assume that Vroom’s platform is basically an abandoned parking lot. Yet, the data proves that this isn’t the case at all.
Impressively, 21,243 e-commerce units were sold through Vroom during 2021’s fourth quarter. This represented 93% year-over-year (YoY) growth. Plus, for full-year 2021, the company demonstrated 117% YoY growth in e-commerce units sold.
So, it sure sounds like people are flocking to Vroom to get a deal on a used vehicle. Has all of this e-commerce activity translated to revenue growth, though?
Indeed, it has. As it turns out, Vroom’s total revenue more than doubled from $405.8 million in 2020’s fourth quarter, to $934.5 million for fourth quarter 2021. Moreover, Vroom boosted its total revenue from $1.36 million in full-year 2020, to $3.18 million in full-year 2021.
On top of all that, Vroom Chief Financial Officer Robert Krakowiak had another encouraging statistic to bolster the bullish thesis.
The company was “pleased with our full year progress on ecommerce gross profit per unit, expanding by 25% for the full year despite fourth quarter headwinds,” Krakowiak explained.
What You Can Do Now With VRM Stock
Conceivably, there’s a mismatch between Vroom’s growth as a business and the declining VRM stock price.
This isn’t to suggest that investing in Vroom is risk-free. The shares could certainly continue to lose value in 2022.
Nonetheless, it appears that Vroom is successfully leveraging its car-buying platform to increase the company’s revenue. Therefore, a long position in the stock isn’t a bad idea, as long as you maintain a reasonable position size.
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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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