Headquartered in London, Cazoo Group Ltd (CZOO) is an online used car retailer. It provides a range of sport utility vehicles and hatchbacks. It allows customers to buy, sell, finance, or subscribe to a car online for delivery or collection. It offers various forms of car financing. The company also offers car care services, such as extended warranty and paint and fabric protection.
Supply chain disruptions and semiconductor shortages have hindered the growth of new car production, driving sales of used cars since the onset of the pandemic. Longer waiting periods for new vehicles have pushed buyers towards used cars, driving their sales. With lingering supply chain and semiconductor issues, the demand for used vehicles is expected to remain strong. However, not all used car retailers are expected to benefit.
CZOO’s shares have declined 85.5% in price over the past six months and 86.6% over the past year to close the last trading session at $1.32. Limited used-car supply amid surging demand and weak financials are the key concerns making investors drop the shares. It is currently trading 86.9% below its 52-week high of $10.13, which it hit on November 2, 2021.
Here is what could influence CZOO’s performance in the upcoming months:
Disappointing Financials
CZOO’s UK Retail Gross Profit per Unit (GPU) declined 13.2% year-over-year to £124 for the first quarter, ended March 31, 2022. The company’s gross profit decreased 50% year-over-year to £2 million ($2.46 million). Also, its gross margin came in at 0.5%, compared to 3.3% in the year-ago period.
Unfavorable Analyst Estimates
Analysts expect CZOO’s EPS for its fiscal 2022 and 2023 to remain negative. Also, its EPS is expected to decline 144% per annum over the next five years.
POWR Ratings Reflect Bleak Prospects
CZOO has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CZOO has a D grade for Sentiment, which is in sync with its EPS, which is expected to remain negative in its fiscal 2022 and 2023.
CZOO is ranked #60 out of 72 stocks in the F-rated Internet industry. Click here to access CZOO’s ratings for Growth, Value, Momentum, Stability, and Quality.
Bottom Line
The shares of CZOO are currently trading below their 50-day and 200-day moving averages of $2.55 and $6.20, respectively, indicating a downtrend. Also, despite the used car industry’s bright prospects, CZOO is not expected to perform well due to its weak financials and poor growth prospects. So, we think it could be wise to avoid the stock now.
How Does Cazoo Group Ltd (CZOO) Stack Up Against Its Peers?
CZOO has an overall POWR Rating of D, which equates to a Sell rating. Therefore, we think one might want to consider investing in other Internet stocks with an A (Strong Buy) or B (Buy) rating, such as Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO).
Note that TRVG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
CZOO shares were trading at $1.26 per share on Monday morning, down $0.07 (-4.92%). Year-to-date, CZOO has declined -79.10%, versus a -15.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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