What Happened?

Shares of online new and used car marketplace Cars.com (NYSE: CARS) jumped 4.5% in the afternoon session after JPMorgan upgraded the stock. 

The investment bank raised its rating on the online automotive marketplace to "Overweight" from "Neutral," while keeping its price target at $14.00. JPMorgan's decision was based on a valuation analysis, noting that Cars.com trades at a significant discount to its primary competitor, CarGurus. The bank felt this valuation gap is overly wide, even considering Cars.com's slower recent growth. An "Overweight" rating suggests that the analyst believes the stock will outperform the average return of the other stocks the analyst covers over the next 6 to 12 months. This positive assessment from a major financial institution signaled a shift in sentiment, boosting investor confidence in the company's prospects.

After the initial pop the shares cooled down to $12.92, up 4.8% from previous close.

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What Is The Market Telling Us

Cars.com’s shares are quite volatile and have had 15 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 5 months ago when the stock dropped 20.3% on the news that the company reported weak fourth-quarter results, with full-year revenue guidance slightly missing expectations and next quarter's revenue guidance falling short of Wall Street's estimates. Revenue for the quarter was essentially flat year-on-year, reflecting a decline in dealer subscription sales. Despite the revenue slowdown, Cars.com narrowly exceeded analysts' EBITDA expectations, indicating a better handle on profits. Overall, this was a weaker quarter, with revenue growth stagnating even as cost controls helped sustain profits​.

Cars.com is down 23.3% since the beginning of the year, and at $12.92 per share, it is trading 37.3% below its 52-week high of $20.62 from July 2024. Investors who bought $1,000 worth of Cars.com’s shares 5 years ago would now be looking at an investment worth $2,187.

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