We recently compiled a list of the 10 Best One-Dollar Stocks To Buy Now. In this article, we are going to take a look at where CarParts.com, Inc. (NASDAQ:PRTS) stands against the other one-dollar stocks.

The upward trend in the stock market has resumed, supported by strong first-quarter and second-quarter results that have relieved investor concerns about inflation. The US economy had a very strong year in 2023. Economic activity increased steadily, job creation was high, unemployment was low, real earnings rose, and inflation declined. Furthermore, the Federal Reserve maintained high interest rates throughout this time in an attempt to control inflation. June recorded a market increase of more than 10%. The large-cap market of the 500 biggest companies has already surged over 17% so far this year as analysts look forward to reduced interest rates in the second half of 2024, along with higher earnings growth and lower inflation.

Historically, since 1928, July has been the strongest month of the year for stocks in terms of performance. The market rose by 1.7% in July. Given that the market posted gains in May and June despite notable economic uncertainty, investors remain bullish that the market can sustain its positive trend.

In a May speech to the Foreign Bankers' Association, Federal Reserve Chair Jerome Powell recognized the difficulty of bringing inflation down to the desired level. Powell stated that it could be essential to keep interest rates at their present levels for a longer period of time. Interest rates have been fluctuating between 5.25% and 5.5% since July 2023.

Amid concerns over an impending recession brought on by higher interest rates, the US labor market still remains stable. According to the Labor Department, the US economy created 175,000 new jobs in April, although this was less than the 240,000 jobs that economists had predicted. The US labor market maintains a low unemployment rate of 3.9%, while US wages have risen 3.9% YoY. Nonetheless, recession fears are maintained by the historical recession predictor, the inverted U.S. Treasury yield curve, and the New York Fed's model, which projects a 50% chance of a recession within the next 12 months.

The second quarter of 2024 saw a gain of more than 3% in the US stock market. Under the hood, tech companies continued to lead the artificial intelligence trade, which showed no signs of slowing down throughout the quarter. One striking trend in the stock market this year has been the outperformance of the biggest companies. The large-cap market of the 500 biggest companies gained 4.4% in Q2, bringing its 2024 return to more than 15%. By comparison, the small-cap market had a decline of 3.3%, resulting in a reduced 2024 return of 1.6%.

With over half of 2024 already gone, the US stock market is expected to see significant increases for the second year in a row.

According to DataTrek Research co-founder Nicholas Colas, the 2024 stock market surge is about more than just this year; it also includes the outlook for 2025 and 2026. Colas stated:

“Markets are convinced that U.S. large cap companies will see many years (not just one) of improving earnings. Earnings for 2024 only have to come through slightly better than last year, and nothing occurs on the macro side (economic growth, geopolitics) to derail further earnings growth in 2025 and 2026.”

Investor confidence is supported by historical trends and recent earnings performance. The stock market does well in election years, according to historical statistics, especially when the president is serving his first term, as is the case with Joe Biden.

Methodology:

In this article, we first used a stock screener, Finviz, to list down all stocks trading under $1.5 and above $0.85 (as of the writing of this article) with over 40% institutional ownership. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 920 hedge funds in Q1 2024 to gauge hedge fund sentiment for stocks. We have used the stock's Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested. We only considered stocks that received "buy" or "strong buy" recommendations from analysts.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)

An overhead view of an auto parts warehouse full of replacement parts.

CarParts.com, Inc. (NASDAQ:PRTS)

Number of Hedge Fund Investors: 12

CarParts.com is an online retailer that specializes in aftermarket vehicle parts and accessories. It is based in Torrance, California. PRTS provides a variety of products, such as performance accessories, mechanical and electrical components, and replacement parts, to individual customers via its online marketplaces and e-commerce websites. Automobile body and repair shops are another target market for CarParts.com. The company, along with its subsidiaries, distributes aftermarket car parts and accessories in the United States and the Philippines.

During the COVID-19 pandemic lockdowns, the company and its shares saw tremendous growth, with a share price peaking at $19.50 in 2021, which is similar to the trend observed in many online companies. Sales increased in the second, third, and fourth quarters of FY2020 by 60% to 90% year over year. Nevertheless, when these pandemic-driven tailwinds faded, CarParts.com encountered difficulties, as seen by the stock's poor performance over the last three years. The stock price has decreased by over 93% since 2021, as of July 16.

CarParts.com reported sales of $166.29 million for the first quarter of 2024, which was higher than the analyst consensus expectation of $160.20 million but represented a 5.24% drop from the same period the previous year. The company reported a $6.5 million net loss, which is an increase from the $1.1 million loss during the same time last year. Due to higher outbound transportation costs and selling price compression, gross margins fell by 3.22%, and adjusted EBITDA dropped to $1.1 million from $9.4 million. In spite of these difficulties, the company released a mobile app in 2023, which is significant for PRTS because it currently accounts for more than 8% of PRTS's overall eCommerce sales.

Analysts urge investors to "buy" PRTS, which is now trading for $1.12. With an average price objective of $3.00, the company presents investors with a 169.06% potential upside. With no revolver debt, the company has about $46.0 million in cash and marketable securities. As of the end of the first quarter of 2024, 12 hedge funds out of 920 hedge funds had a stake in CarParts.com, Inc. (NASDAQ:PRTS), according to Insider Monkey's data. AQR Capital Management, managed by Cliff Asness, owns 1,846,142 shares of the firm, valued at $2.10 million.

Analysts predict that revenue will rise to $175.38 million in Q2 2024. The revised outlook by the company is bleaker, however, since net sales estimates have been reduced from $662-$688 million to $600-$625 million for 2024. On the other hand, the rise in projected gross margin from 31% to 33% is a positive indication of increased profitability. However, we are concerned about the company's weak or negligible sales growth and persistent profitability issues and recommend caution.

In order to stand out from the competition in the online car parts business, CarParts.com must improve both its customer experience and operational efficiency. The company's strategic goals, which include the release of the mobile app with more organic downloads, higher ASPs, repeat sales, and continuous attempts to control costs, are intended to increase sales and boost profits. In Q1 2024, headcount reductions were made to mitigate the impact of gross margin drops by reducing the workforce, showing operational efficiency. CarParts.com has had financial problems recently, but it still has enough cash on hand to fund its expansion plans and weather market turbulence. The company also received 38% of its e-commerce income from loyal, returning clients, and its website had over 100 million views in Q1 2024, demonstrating the strength of its online presence.

David Meniane, CEO, stated:

"We are well positioned to capture the tremendous and growing opportunities within the highly fragmented and underserved four hundred-billion-dollar aftermarket auto parts industry."

In conclusion, CarParts.com's solid cash position and positive valuation measures suggest that the company may rebound, but investor trust depends on profitability. Notwithstanding the need for the company to increase sales and boost profitability, analysts are generally cautiously hopeful.

Overall PRTS ranks 10th on our list of the best one-dollar stocks to buy. You can visit 10 Best One-Dollar Stocks To Buy Now to see the other one-dollar stocks that are on hedge funds’ radar. While we acknowledge the potential of PRTS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PRTS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.