Cars.com (CARS) is a Zacks Rank #5 (Strong Sell) that operates one of the largest automotive marketplaces in the United States. The company connects car shoppers with dealers and manufacturers through its digital platform.
While management talks about AI enablement and platform evolution, the numbers tell a different story. Earnings collapsed year over year, traffic is shrinking, national advertising is under pressure, and analysts keep cutting estimates.
Even the CFO is selling stock.
About the Company
The Chicago based company runs the Cars.com marketplace along with a suite of dealer solutions including websites, appraisal technology through AccuTrade, and media services. It generates most of its revenue from dealer subscriptions and advertising.
The company is valued at just under $600 million. The Zacks Style Scores are positive, with scores of "A" in Value, Growth, and Momentum.
A Quarter That Raised Red Flags
Cars.com reported 6% Q1 EPS miss, with revenue of $180.2. Total traffic fell 6% year over year to 159.6 million. Monthly average revenue per dealer was flat at $2,473, both sequentially and year over year.
OEM and national advertising remain a headwind, down $2 million year over year in Q1 with similar pressure expected in Q2 as manufacturers shift budgets toward vehicle incentives to offset tariffs.
The company guided Q2 revenue flat to up 2% and affirmed the same range for the full year. Management identified $25 to $30 million in annualized cost savings, but the CFO immediately cautioned that investors should not model it as a clean step down since some savings will be reallocated into product initiatives.
Solutions and website customer counts declined sequentially. AccuTrade subscribers also fell, which management framed as "according to plan." And while the company touts AI discoverability, traffic from LLMs remains below 1%.
The raised buyback target, up 50% to $90 million, is the one shareholder friendly headline.
Estimates Are Falling
Analysts are heading for the exits, slowly but surely.
Over the last 60 days, estimates have been cut across the board with zero increases. The Zacks Consensus Estimate for the current year has slipped from $2.17 to $2.10 over the last 90 days. Next year's number has dropped from $2.54 to $2.38, a 6% haircut. The current quarter estimate has fallen from $0.52 to $0.49.
B. Riley cut the stock to Neutral from Buy citing balanced risk and reward, while UBS and JPMorgan both sit at Neutral with price targets in the $11 to $12 range.
Insiders Are Selling
CFO Sonia Jain sold 86,600 shares in mid-June at prices around $9.50. Insider selling is not always a red flag, but when the CFO trims her position while estimates fall and traffic shrinks, investors should take notice.
Technicals
The chart doesn’t look bad at the moment as the stock remains over the 200-day MA. When you zoom out, we see a sideway trend over the last year as the stock treats the $10 level as a magnet.
For now, CARS is seeing some 200-day MA support, with the 50-day MA at that $10 mark. If that level gives way, investors could see another test of the June low at $9.
In Summary
Cars.com is a flat growth story with falling traffic, pressured advertising, declining estimates and insider selling. Until the estimate revisions turn higher, the stock is a value trap best avoided.
For investors interested in an internet commerce name, check out Wayfair (W). The stock is a Zacks Rank #1 (Strong Buy) that is trading near five-month highs.
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