Chip Shortage Powering Demand for Used Vehicles
The global microchip shortage has improved, but it continues to wreak havoc in many industries. Automakers have had to slow their production, resulting in major delays in the availability of new vehicles. While that’s negative for automakers, the situation has provided strong tailwinds for the used vehicle market.
Americans purchased about 39.4 million used vehicles in 2018, many more than the 17.3 million new vehicles sold that year. (Source: “Used Cars, New Platforms: Accelerating Sales in a Digitally Disrupted Market,” McKinsey & Company, June 6, 2019.)
Given the chip situation, which may not be resolved until 2022, the demand for used vehicles is expected to rise. McKinsey & Company estimates that, from now until 2023, the sales of used vehicles will grow at a faster rate than the sales of new vehicles.
To play the tailwinds in the used vehicle market, investors might want to consider Shift Technologies Inc (NASDAQ:SFT).
The company aims to disrupt the used vehicle market via its online platform. The fully integrated sales process includes sourcing vehicles, test driving, financing, warranties, and digital transactions.
SFT Stock Worth a Look After 38% Discount
Shift Technologies stock rallied to a high of $14.91 in June 2020, prior to a sell-off.
The below chart shows the downward channel and the surfacing of a death cross pattern in November 2020. That’s a bearish signal that appears when the 50-day moving average breaks below the 200-day moving average.
If SFT stock attracts support, it could move back toward its 200-day moving average and its resistance level at $10.00–$11.00, followed by $13.00.
Chart courtesy of StockCharts.com
Massive Financial Growth on the Horizon
Shift Technologies Inc’s revenue growth has been accelerating as the chip shortage impacts the availability of new vehicles. The company’s four-year revenue picture shows stellar double-digit growth in the last three years, to a record level in 2020.
Shift Technologies’ compound annual growth rate (CAGR) for revenue was 27.5% during this period.
|Fiscal Year||Revenues (Millions)||Growth|
(Source: “Shift Technologies Inc.” MarketWatch, last accessed September 13, 2021.)
The revenue estimates for Shift Technologies Inc have been rising at well above the CAGR. Analysts estimate that the company will grow its revenues by 200% to $587.2 million this year and by 71.9% to $1.0 billion in 2022. (Source: “Shift Technologies, Inc. (SFT),” Yahoo! Finance, last accessed September 13, 2021.)
Based on the estimates, Shift Technologies Inc trades at an attractive 1.2 times its consensus 2021 revenue estimate. For 2022, the ratio declines to an even cheaper 0.7 times.
While its revenues accelerate, Shift Technologies Inc will need to focus on expanding its margins and work toward generating earnings before interest, taxes, depreciation, and amortization (EBITDA) income.
|Fiscal Year||EBITDA (Millions)|
(Source: MarketWatch, op. cit.)
The company also needs to work toward reducing its generally accepted accounting principles (GAAP) diluted earnings-per-share (EPS) losses.
|Fiscal Year||GAAP Diluted EPS|
(Source: MarketWatch, op. cit.)
The GAAP loss is expected to improve to $1.93 per diluted share this year, followed by $1.72 in 2022. (Source: Yahoo! Finance, op. cit.)
Shift Technologies Inc has been reporting impressive financial growth. The second quarter saw its revenues spike by 377% and its units sold jump by 240% year-over-year. The company’s gross profits surged by 357%.
Based on its excellent first-quarter and second-quarter results, Shift Technologies raised its revenue guidance to $575.0–$595.0 million for 2021, representing a major increase from the previous guidance of $480.0–$520.0 million provided in the first quarter. (Source: “Shift Grows Revenues 377% in Q2’2021, Raises Guidance for 2021,” Shift Technologies Inc, August 10, 2021.)
Institutional investor support for Shift Technologies Inc has been rising. Currently, 121 institutions hold 58.1% of the outstanding shares of Shift Technologies stock. (Source: Yahoo! Finance, op. cit.)
Insiders have also been jumping on board, given the price deterioration of SFT stock. Over the past six months, insiders added a net 4.8 million shares to their portfolios.
Combined with the attractive valuation and the bullish tailwinds for used vehicle sales, Shift Technologies stock looks like a bargain right now.
Based on the company’s outlook, a doubling or tripling of the price of SFT stock is within reason.