TrueCar (TICKER: TRUE) Looks Ripe for a Sell-Off

TrueCar (TRUE) has had quite the turnaround since since 2015, rising from a low of $4.01 to the current $21.23 a share. The problem with TrueCar is that nothing has really changed - the dealers now tolerate them while consumers continue to think they're getting a great deal via the "Guaranteed Savings" TRUE sends to them (they're not). One thing is certain though - the new CEO, Chip Perry, looks like a genius. After Scott Painter resigned as CEO in December 2015, the company has bounced back from its woes and is sitting at the highest units sold in history. TRUE gets $300 per new car sold and $400 per used car sold via TrueCar and its affiliates. Given that gross margins on new car dealer sales are ~4% at best, you can see why dealers hate TrueCar. They are sitting right at their "target" dealer count and by management's estimate there are maybe 2,000 more dealers who could fit into the picture for TRUE. Management's so-called operational leverage is non-existent - if they're not making profits soon, they will never be.

Even the most optimistic sell-side estimates don't have them earning a substantial profit (read: positive) until 2019. There's no where else for these guys to go - this stock is priced to perfection and any slip will have them tumbling back whence they came from. Lock-up expiration for 31.5M shares is coming up July 25, right before earnings. I hope they beat and the stock jumps - I'm looking to put a substantial short on.

 

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