On Friday, Lake Street Capital Markets adjusted its outlook on CarParts.com (NASDAQ: PRTS), lowering the stock price target to $5.00 from the previous $7.00, while still maintaining a Buy rating on the stock. The adjustment comes as the company faces a challenging consumer environment, which has led to lower demand and increased freight costs, impacting revenue growth and margins.
The firm cited that despite the increase in volume, CarParts.com's revenue growth has been subdued due to the weak consumer environment that has necessitated lower prices. This situation is further exacerbated by rising freight costs, which the company has been unable to offset through pricing, leading to margin compression. Analysts at Lake Street Capital Markets have expressed a belief that the stock may be range-bound in the near term due to these challenges.
However, the firm remains optimistic about CarParts.com's long-term prospects, noting that the company continues to capture market share within the expansive $300 billion-plus industry. Investments in marketing, e-commerce, product assortment, and customer experience are expected to drive future growth.
Moreover, operational efficiencies in labor and order flow management have improved costs in the company's warehouses, and a reduction in headcount is anticipated to further aid in cost savings.
Despite the downward revision of the price target, Lake Street Capital Markets has underscored that, at current valuations of 0.1 times revenue and approximately 5 times EBITDA, CarParts.com's shares are undervalued when compared to its peers, which trade at 2 times revenue and 13 times EBITDA.
The firm's reiteration of the Buy rating reflects confidence in the company's value proposition and its strategic initiatives to navigate the current market challenges.
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