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Cars.com (NYSE: CARS) won’t be driving away with a new buyer anytime soon.

Shares of the online automobile marketplace have been in freefall the past two days after the company said its ten-month journey to find a new suitor turned up empty handed.

 

Cars.com Completes Strategic Review

Sluggish automobile sales and lower-priced competitors likely undermined the company’s value in the eyes of potential investors.

In a year’s time, Cars.com went from receiving unsolicited bids for a buyout to not being able to land anybody to take over the company. During the ten-month review period, the car search engine met with 29 potential suitors in a process that was overseen by JPMorgan Chase & Co.

“The Board has concluded that the best interests of shareholders are served by continuing to focus on our strategic plan and opportunities to drive growth and shareholder returns,” Cars.com Board Chairman Scott Forbes said in a statement, according to The Wall Street Journal.

Forbes indicated that the company remains open to additional offers.

It’s not entirely clear why Cars.com failed to secure the deal it wanted, but some analysts say the market isn’t as receptive to the company as it was just a few years ago. Sluggish automobile sales and lower-priced competitors likely undermined the company’s value in the eyes of potential investors.
A dismal second-quarter earnings report didn’t help matters, either. On Monday, Cars.com posted a net loss of $0.09 per share on $148.2 million in revenue. Analysts predicted per-share earnings of $0.09 on revenue of $160.05 million.
During the same quarter last year, the company earned $0.18 per share on $168.51 million in sales.

 

Shares Get Pummelled

Monday was a dismal day for Wall Street – it’s worst of the year – but for Cars.com the session was much worse. The stock crashed more than 35% on Monday and would go on to lose another 12% on Tuesday. All said, CARS is down 42% since Friday’s close and more than 45% in August.
CARS Share Price 1 Month - Aug 7 2019

Source: Yahoo Finance

The company’s market capitalization has been cut almost in half since Friday’s close, from $1.2 billion to $692.9 million.
Even before the latest setback, CARS wasn’t performing very well. The stock fell 14% through the first seven months of 2019, a stretch that produced double-digit returns for the S&P 500.

 

Conclusion

The latest quarterly results, combined with the inability to attract a suitor after ten months of searching, have put Cars.com in a perilous position. If recent reports about a slowdown in auto sales are correct, things can go from bad to worse for the car-search company.  Keep in mind that auto sales are among the first to decline when a recession comes barreling down. We don’t want to get ahead of ourselves, but exposure to Cars.com isn’t for the faint of heart right now.

Disclaimer: Author holds no investment position in Cars.com at the time of writing. 

About Author

Sam Bourgi

Sam Bourgi

Sam Bourgi has more than nine years of experience in economic analysis, market research and financial writing. His work has been featured in and cited by some of the world’s leading newscasts, including Barron’s CBOE and Forbes. At Grizzle, he explores the intersection between technology and finance, as well as emerging sectors. He obtained his MA from McMaster University in Canada.

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