E Automotive has 145 per cent upside, Eight Capital says

Eight Capital analyst Christian Sgro is sill charged up about E Automotive Inc (E Automotive Stock Quote, Chart, News TSX:EINC) for a spin, maintaining a “Buy” rating and target price of $28/share for a potential return of 134 per cent in an update to clients on Wednesday.

Founded in 2017 and headquartered in Toronto, E Automotive provides automotive dealers with access to an online wholesale auction marketplace and subscription solutions to support digital retailing and management, operating under the brands of EBlock, where dealerships are given access to an online auction that simulates the urgency of a live auction, and EDealer, a recurring subscription offering where dealers can track and showcase inventory to consumers, ultimately facilitating the sale of new and used vehicles. Sgro’s update comes as a preview to E INC’s fourth quarter financial results, which are scheduled to be released on March 22.

“Based on industry data and peer results, we are constructive on the potential for top-line outperformance supported by both stronger-than-expected ARPU and better-than-feared volume,” Sgro said.

Current projections from Eight Capital have E INC’s fourth quarter coming in at $17.7 million for an 11 per cent sequential decrease and 90.6 per cent year-over-year increase, while the consensus forecast calls for $17.9 million in revenue.

The Eight Capital analyst estimates remain relatively close to the consensus in terms of the gross margin (Eight Capital projects 45.6 per cent, consensus forecasts a 45.8 per cent margin), with a slightly rosier outlook in terms of adjusted EBITDA (Eight Capital projects a $4.2 million loss, consensus forecasts a $5.2 million loss).

The company made an executive move today as well, appointing Lisa Scott as the company’s new Chief Revenue Officer.

"Lisa brings an extensive depth of experience, relationships and passion for the industry," said Jason McClenahan, President and CEO of E INC in the company’s March 16 press release. "She is a driven leader and will be a strong addition to our experienced team, as we deliver on our vision of providing best-in-class technology supporting our dealer partners through this dynamic time for our industry."
Prior to joining E INC, Scott served as President of PAR North America, a leading nationwide provider of vehicle transition services for the last four years.

"I'm thrilled to be joining E INC as the company executes its growth strategy across the United States," Ms. Scott said. "It's exhilarating to join such a fast-growing technology company that is focused on providing solutions for dealers both in Canada and the U.S. as it continues to grow its business during unprecedented times. E INC has an incredible team, and I look forward to digging in to help them build the team and
accelerate their revenue and growth goals."

While a year-end revenue forecast of $74.6 million for 2021 would give the company a 146 per cent year-over-year increase, Sgro projects continued revenue growth from the company into the future, with a 31 per cent jump to $98 million in place for 2022, a figure slightly below the $100.3 million consensus projection.

From there, Sgro forecasts the company’s revenue to jump into nine figures at $135.9 million for projected year-over-year growth of 39 per cent.

From a valuation perspective, Sgro forecasts the company’s EV/Revenue multiple to drop from 4.2x in 2021 to a projected 3.2x in 2022 before dipping to a projected 2.3x in 2023.

By contrast, with continued investments still in place, Sgro forecasts continued losses in adjusted EBITDA at $6.6 million in 2021 to mirror the consensus estimate, then falling off to a $14.5 million loss in 2022, effectively in line with the consensus projection of a $14.7 million loss, before dipping again to a projected $17 million loss in 2023.

Meanwhile, Sgro projects the company’s gross margin to check in at 47.5 per cent in 2021 compared to the consensus forecast of 47.2 per cent. For 2022, Sgro’s forecast remains at 47.5 per cent while the consensus forecast rises slightly to 47.6 per cent.

Looking ahead, Sgro notes the belief from peers that the fourth quarter will be E INC’s peak, and that a pricing pullback may be coming.

“With respect to volumes, peers have suggested that H1/22 will likely remain constrained, with the potential for easing in the back half of the year,” Sgro said. “Recall that these cross-currents impact EINC in different ways; on balance, we believe that an eventual rebound in volumes will have a much greater positive impact than the negative impact from a decrease in used car prices and fees.”

Since it began trading on the Toronto Stock Exchange in November, E Automotive’s stock price has fallen off by 48.7 per cent, punctuated by a loss of 33.7 per cent since the start of 2022. However, the stock has experienced a slight rebound since dropping to its low point of $10.80/share on February 7.