What happened
Shares of CarParts.com (PRTS 0.70%) followed the market lower last year, finishing 2022 down 44%, according to data from S&P Global Market Intelligence.
Like other e-commerce stocks, CarParts.com stock soared during the earlier stages of the pandemic as stay-at-home orders and social distancing led Americans to do more DIY car repair and improvement, much like they spent more money on home goods and home improvement.
In 2022, however, that sales growth decelerated, and the stock followed downward as investors seemed to doubt its growth potential. The chart below shows the stock's performance over 2022.
So what
There wasn't any singular reason for CarParts.com's slide last year, and, in fact, most brick-and-mortar auto parts stocks gained as the industry is viewed as countercyclical and recession-proof.
With prices for used cars at all-time highs for much of last year, spending on auto parts to repair vehicles rather than buying new ones becomes more attractive.
CarParts.com's results were mostly in line with estimates over the course of the year. Revenue growth slowed, but remained solid, in the double digits, and came in at 16% in its most recent quarter. The sell-off came as investors seemed to question the thesis around the company's disruptive potential due to that slowing growth.
CarParts.com has a compelling value proposition. It private-labels most of its product and it sources directly from manufacturers, eliminating the middleman and allowing it to undercut its brick-and-mortar competitors. However, investors want to see financial results confirming the disruptive potential, and those have been inconsistent at times.
The slowdown in revenue growth was largely expected given the sales boom earlier in the pandemic, and its profits under generally accepted accounting principles (GAAP) have been around break-even. In the third quarter, it also posted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $6.3 million, up from $2.3 million.
Finally, last spring, former CEO Lev Peker surprisingly left the top job, becoming CEO of CarLotz, and David Meniane was promoted from chief operating officer to CEO.
Now what
With a recession lurking in 2023, analysts expect CarParts.com to deliver another year of moderate growth, calling for a 12% top-line increase in 2023. However, the company has some promising ideas that could drive its long-term growth.
It recently introduced a Do-It-For-Me service, in which it's partnered with mechanics who will install parts that customers order themselves on CarParts.com, giving shoppers a way to save money and providing new business for the mechanics. Its long-term goal is to provide mobile mechanics that will go to customers' homes to fix their cars.
The company still has disruptive potential in a massive addressable market, but the path may be longer than it seemed earlier in the pandemic. Still, at the current price, CarParts.com looks like a good buy, especially as profitability continues to improve.
