Short Term Catalyst With Strategic Alternatives

A sale of the company could be underway

I have been buying this stock pretty aggressively over the past week.

• The company has a net cash balance sheet, no debt and a bunch of inventory.

• The enterprise value is only $17 million.

• The company owns a website that generates 100 million views on an annual basis.

• They also own the number one eBay store in the world.

• The stock has fallen on a weak Q4 report.

• In addition, if you don’t back out of one-time expenses, it appears as if the company is going to be burning cash flow for fiscal year 2025.

• The management team recently announced strategic alternatives with the potential sale of the entire company.

• Usually management takes questions on the earnings calls, but there was none for Q4. I suspect they are close on entering into a transaction.

The stock is dirt cheap. It is trading near all time lows. If the company liquidated the company today, it would be worth multiples of the entire enterprise value. During COVID the company was trading at over $20 per share and now it is under a dollar, despite over $600 million of sales. There is a lot of inventory, a valuable domain name and a bunch of equipment in warehouses. In addition, the company should be a cash flow generator in future years as expensive one-time costs will not occur in future periods. With the announcement of strategic alternatives, I think this company is set-up to be sold in the near-term and the recent downward spiral in the stock price (likely related to tariffs and a weak Q4) should bode well for investors who are looking to establish a position today.

Let’s dig in…

Carparts.com (PRTS) is a nano-cap company that sells car parts online through there website carparts.com, an eBay store and Amazon store. With a stock price of $0.91, the company has a market cap of $53 million and enterprise value of $17 million.

The stock has gotten hammered over the past few years. Carparts.com was a COVID beneficiary. The stock hit all time highs of $20 per share in 2021 and since then, the valuation has went straight down from poor financial results.

Despite the collapse in the stock price, the company has significant assets that are likely worth more than the current enterprise value. Here is my high level thesis:

• The enterprise value is only $16 million. There is $36 million of net cash on the balance sheet, $90 million of car part inventories and $6.0 million of accounts receivables. Assets are offset by $60 million of payables and $16 million of accrued expenses.

• Sales peaked at $675 million in 2023. Sales in 2024 came in at $588 million. Sales have fallen from a weakened consumer, the company making strategic investments to replatform the website and a warehouse move in Las Vegas. I expect sales to return to growth in 2025 and potentially beyond as the replatforming of the website should lead to higher basket size, a faster website and the ability for the company to rollout additional features. However, the management team did not give guidance for fiscal year 2025 as they are going through strategic alternatives.

• Revenues have fallen in 2024 due to the recent re-platforming of the website, an effort to increase average SKU prices for gross margin improvement, and softer consumer demand. Previously, the outdated website infrastructure limited the company’s ability to enhance the shopping experience. However, the new platform allows for faster, cost-effective implementation of new features, which could drive improvements in order frequency, conversion rates, and basket sizes.

• The company has eliminated $10 million in annual costs. Capital expenditures for 2024 are over $20 million, largely due to the website re-platforming and relocating the Las Vegas distribution center to a lower-cost facility. For 2025, capex is expected to decrease to $8-$10 million. Over the long-term management is forecasting EBITDA margins of 6-8%. If management comes even close to these EBITDA margin targets the stock is a multi-bagger.

• There is a poison pill that limits any single investor from acquiring more than 5% of the common stock. The company implemented this poison pill to protect the valuable NOLs of over $100 million. Given the market cap of only $53 million, this limits many institutional investors from owning the stock given the absolute low level of dollars they can put to work.

• The company is attempting to grow B2B sales channel which has historically only represented less than 5% of sales. B2B sales have high margins and any growth achieved here should raise overall gross margins. The company has recently hired two B2B salesmen in Texas and Florida to go out and win new business and over the next 12-18 months we could see significant improvement on the B2B side.

• They own the number one eBay store in the world which generates $130 million of revenue for the company.

• Historically the company has only ever ran Google ads. The company recently hired a new ad tech individual to start running ads across multiple social media platforms.

• At the current valuation the company is a sitting duck for a strategic to come in and potentially take the company out. With an enterprise value of only $17 million, a buyer at the current valuation is getting a lot of assets for free including $90 million of inventory and a website that generates over 100 million of annual views.

• A strategic takeover might happen. On March 5th, 2025, the company announced it has engaged in a process to explore strategic alternatives to maximize shareholder value, including the possible sale of the company, in response to in bound strategic inquires the company has received. The board has hired Craig-Hallum Capital Group as the financial advisor.

• I expect the company to return to generating free cash flow in 2025. The warehouse move and the replatforming of the website are done. Average sku prices are rising. And gross margins are beginning to re-rate.

• There isn’t much downside at the current valuation and if EBITDA margins return to even just 2% (historically the company has generated 3-4% EBITDA margins) the company is trading at less than 2.0x EV/EBITDA.

• Risks include the management team not executing on the turnaround, continued customer pressure, product margins falling even further, and the strategic alternatives failing to amount to anything.

Carparts.com isn’t a complicated story. The company has a website that generates over 100 million in views, the number one eBay store in the world, $90 million of inventories, owned equipment in their warehouses and an enterprise value of only $17 million. The stock has gotten hammered and the valuation is so low that institutional investors simply cannot put enough money to work to make an investment worth their while. I think there is limited downside and material upside if the management team turns the business around. There could also be a short term catalyst of a takeover if the strategic alternatives amount to anything.

Disclosure: I am long carports.com PRTS 0.00%↑. I will buy or sell my shares anything after this newsletter is published. I am not a financial advisor. This is not investment advice. Do your own research.