Why EverQuote shares may remain weak

EverQuote (ALREADY) stocks are down nearly 40% since the start of 2022, pushing the 14-day Relative Strength Index (RSI) to 25.49. When the RSI is above 70, the stock is generally considered overbought, while below 30 it is considered oversold.

I’m bearish on this stock.

About EverQuote

EverQuote operates an online insurance marketplace that allows consumers to connect with insurance providers in the United States.

Nearly 80% of its business depends on the automotive industry, while the rest comes from the remaining segments.

EverQuote serves insurance companies and agents, as well as indirect distribution partners.

EverQuote’s headquarters are in Cambridge, Massachusetts.

Q1 2022 results

Headwinds from a tougher auto insurance market dampened revenue growth, which came in at 6.6% year-over-year in the first quarter of 2022.

However, the company beat analysts’ average revenue forecast of $8.47 million in the first quarter of 2022, while posting $110.7 million.

EverQuote’s GAAP results were negative as the company incurred a net loss of $0.19 per share, but exceeded estimates by $0.08.

Adjusted EBITDA was $2.4 million, down from adjusted EBITDA of $4.8 million last year.

The company expects second-quarter 2022 revenue to be between $92 million and $97 million, and full-year 2022 revenue to be between $400 million and $420 million.

Profitability ratio

The profitability of EverQuote’s operations must improve significantly.

The relevant financial indicators are all negative, except for the 12-month gross profit margin of 94.36% compared to the industry median of 50.99% and the 12-month leveraged FCF margin of 5.51% compared to the industry median of 10.57%.

EBITDA and net profit margins are -4.88% and -5.02% respectively, compared to the industry medians of 9.95% and 20.77%.

Additionally, the 12-month return on common stock is -23.93% compared to the industry median of 6.01%, while the 12-month return on total assets is -14, 97% compared to the industry median of 4.39%.

For the reasons explained below, the auto insurance industry is expected to experience a slowdown as demand from carriers will suffer from the expected decline in new vehicle sales volumes.

Higher rates will trigger higher premiums and expand EverQuote’s profit opportunities, but this will have a slight offsetting effect on the loss of demand from insurance companies that is expected to occur.

The future is difficult

As interest rates continue to rise to counter inflation, macroeconomic variables are expected to move in a way that will not support the auto industry.

Higher borrowing costs will certainly not be an incentive to buy a new car. Even rising fuel prices, influenced by long-term factors from the war in Ukraine, are expected to weigh on the outlook for the automotive sector in the coming months.

Inadequate inventory relative to current demand is a problem, as is the inability of automakers to ramp up production due to the ongoing auto parts supply problem, both of which are dragging down car sales.

In April 2022, light vehicle sales fell by 22% compared to the previous year.

Given this outlook, analysts’ estimates of about 18 million total U.S. vehicle sales in 2023 seem overly optimistic.

However, they would still be lower than the April 2021 peak when 18.5 million vehicles were sold, benefiting among other things from certain incentives distributed during COVID-19.

Tighter monetary policy will also not benefit demand for home and renters insurance, as higher interest rates on bank loans do not encourage people to buy new homes or move to a larger home. big.

Additionally, EverQuote’s life and health insurance business is too small to impact the company’s growth prospects.

Deteriorating balance sheet

The current financial position is $46.13 million in cash and cash equivalents and $170.53 million in total assets versus $68.1 million in total liabilities. Total equity is worth approximately $102.44 million.

The financial position would be much stronger if EverQuote’s weighted average cost of capital, which currently stands at 6.84%, was offset by EverQuote’s higher return on investment, which is currently negative at 28.97. %.

This relationship shows that the firm is not generating positive returns, which (of course) does not correspond to its cost of capital.

The Taking of Wall Street

Over the past three months, seven Wall Street analysts have released a 12-month price target for EVER. The company has a moderate buy consensus rating based on four buy, two hold and one sell rating.

EverQuote’s average price target is $16.80, implying an upside potential of 71.8%.

Evaluation

EverQuote has a market cap of $306.8 million and the stock has a 52-week range of $9.38-$35.80.

The stock has a price-to-book ratio of 3.79, a price-to-sales ratio of 0.73, a price-to-cash flow ratio of 53.1, and a price-to-free cash flow ratio of -20.6.

Conclusion

The outlook for the auto industry will be tough, which also means tough times for auto insurers.

The share price, which has fallen sharply this year, is unlikely to reverse the trend.

Discover new investment ideas with reliable data.

Read the full disclaimer and disclosure

About Ian Crawford

Check Also

TRE: Approval of TCFD recommendations and improvement of the structure of climate change initiatives

June 15, 2022 Company Name: TRE HOLDINGS CORPORATION Representing: Mitsuo Abe, President and Chief Operating …