With higher tariffs on imported vehicles likely to raise the cost of new and used cars, Cars.com’s CARS stock has plummeted more than 30% this year.

Trading near its 52-week low of $9 a share, there could be more downside risk for the Chicago-based online automotive platform, which offers research tools for new and used vehicle listings.

To that point, the lingering supply chain effects of the pandemic combined with higher tariffs have reduced the availability of used cars, with there being fewer trade-ins and off-lease vehicles. 

Image Source: Zacks Investment Research

Declining EPS Revisions

On the surface, Cars.com’s EPS growth may be luring with annual earnings expected to rise 14% this year and projected to increase another 22% in fiscal 2026 to $2.40 per share. However, it’s noteworthy that FY25 and FY26 EPS estimates have declined over 12% and 7% in the last 60 days respectively.

Image Source: Zacks Investment Research

Lower Investor Sentiment

Leading to lower investment sentiment for Cars.com’s stock is that the company has missed earnings expectations for six consecutive quarters with an average EPS surprise of -29.81% in its last four quarterly reports. Notably, Cars.com has missed sales estimates in two of the last four quarters.

Image Source: Zacks Investment Research

Increased Competition & Slower Sales Growth

Although Cars.com has gained much notoriety since becoming independent and going public in 2017, the company has yet to reach a billion dollars in annual sales.

Historically low inventory levels and higher vehicle prices have weighed on Cars.com’s revenue growth as consumer demand continues to plunge. 

Image Source: Zacks Investment Research

Furthermore, Cars.com has faced increased competition in the automotive marketplace from rivals like Autotrader ATDRY, CarGurus CARR, and CarMax KMX along with Carvana CVNA, which is expected to bring in over $20 billion in annual sales by FY26.

Image Source: Zacks Investment Research

Bottom Line

Increased competition has added to macroeconomic concerns, landing Cars.com stock a Zacks Rank #5 (Strong Sell) and the Bear of the Day. While it may be too soon to call Cars.com's stock a value trap, there appears to be more downside risk ahead and investors may want to be cautious even with CARS trading at just 5.7X forward earnings. 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Cars.com Inc. (CARS) : Free Stock Analysis Report

CarMax, Inc. (KMX) : Free Stock Analysis Report

Carvana Co. (CVNA) : Free Stock Analysis Report

Auto Trader Group (ATDRY) : Free Stock Analysis Report

Carrier Global Corporation (CARR) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research