SFT - Shift Technologies Vroom shares slip as JP Morgan downgrades both to Sell

Online auto retailers Shift Technologies ( NASDAQ: SFT ) and Vroom, Inc. ( NASDAQ: VRM ) slid sharply on Monday after J.P. Morgan analyst Rajat Gupta moved to a Sell-equivalent rating on both.

Vroom ( VRM ) shares slid over 5% on significant premarket volume, while Shift Technologies ( SFT ) tumbled 2.4% on significantly lighter volume. The declines on Monday add to an over 90% decline in Vroom ( VRM ) shares over the past year while Shift Technologies ( SFT ) shares have fallen over 80% in that span.

“We continue to see a challenging backdrop for the used car industry and prefer companies that have ample liquidity and/or diversity in their business to navigate an uncertain macro backdrop,” Gupta wrote. “There is clearly no easy/quick fix or turnaround due to which we struggle with the investment case in the near to medium-term. Both companies are now ex-growth, burning ~35-40% of [market cap per quarter] in cash flow and trading at ~4x 2023E EV/GP, a premium to many FCF generating and higher growth e-comm peers.”

As such, Gupta indicated there is no other course of action other than to downgrade both names to an “Underweight” rating.

In regards to the Shift Technologies ( SFT ) acquisition of CarLotz ( LOTZ ), Gupta was not very optimistic in the near term.

“Moving to SFT, we see the updated core business plan along with acquisition with CarLotz, which we view as a de-facto equity raise with some synergies, providing additional liquidity runway though likely to come at a substantial expense to growth and little visibility on return to scaling the business,” he wrote. “While the updated business plans are aimed at allowing both companies to get to FCF breakeven before running out of liquidity, we do not see this as a reason to own the shares until unit economics can be proven along with scalability.”

Gupta advised that visibility on this turn is limited, likely not coming until the latter half of 2023 at the earliest.

Read more on the details of the acquisition .

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