With a growing preference for self-driving electric vehicles (EVs), the automotive industry is gaining traction. The auto parts industry, on the other hand, is equally important because you can't avoid having to repair your car. Furthermore, repairing a car is far less expensive than purchasing a new one.

Additionally, as car prices rise, so do the prices of parts - thereby boosting the revenue and earnings of auto parts companies. In this article, we will discuss one such company, CarParts.com (PRTS) (previously known as U.S. Auto Parts Network). CarParts.com stock has dipped 50% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 18.5%. Nevertheless, Wall Street believes this penny stock could double by the end of 2024.

As I pointed out in my article on SoundHound AI(SOUN), to gain long-term value from penny stocks, it is advisable to focus on their fundamentals and growth strategies.

Let’s find out if CarParts.com fulfills all the criteria for a good buy-and-hold penny stock for the long haul.

What Does CarParts.com Do?

It can be difficult to find the right parts for your vehicle. As the name implies, CarParts.com is a one-stop shop for automotive parts and accessories. This online marketplace stands out as a comprehensive and user-friendly destination for car enthusiasts and everyday drivers alike.

If you are a seasoned mechanic or a novice seeking quality, affordability, and convenience, the platform offers an extensive range of parts and accessories for nearly every make and model.

The platform boasts an impressive catalog that spans various categories, including engine components, body parts, electrical systems, interior accessories, and more.

Q3 Marked The Highest Sales In The Company’s History

Macroeconomic headwinds this year, such as rising inflation, forced consumers to limit their discretionary spending, which affected the company's third quarter ended Sept. 30. CarParts.com's total revenue increased 1% year-over-year to $166.9 million. The company missed revenue consensus estimates by $4.98 million. 

Nonetheless, according to management, Q3 marked the company’s 15th consecutive year of revenue growth, as well as the highest sales in the company's history.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) declined from $6.3 million to $3.0 million in the quarter. The company also reported a loss of $1.50 per share versus a loss of $0.60 in the year-ago period.

When it comes to liquidity, which is essential for a company to stay afloat, CarParts has kept its balance sheet debt-free, and ended the quarter with a cash balance of $66.7 million. It also bought back 245,000 shares during the quarter.

How Is the Future Shaping Up for CarParts.com?

In the Q3 earnings call, management discussed the work the company has been doing to strengthen the business. The auto parts seller launched a mobile app in the quarter, which has received 70,000 downloads and generated $2 million in revenue since its launch.

Furthermore, CarParts is upgrading and modernizing its online website, which will incorporate more features - such as enhanced search results, cross-sell and upsell features, and customer loyalty programs. It hopes to complete the modernization by the end of the first quarter of 2024. Additionally, it has also begun cloud migration, which it anticipates will help the company achieve $1 million in free cash flow annually.

What’s more, the company intends to explore disruptive technologies, such as generative artificial intelligence (AI). Management believes this strategy will help the company gain the "operating leverage" required to boost free cash flow.

While the company hasn’t seen green in its bottom line yet, these smart growth strategies could certainly boost revenue, increasing the probability of CarParts turning a profit in the coming years. Even analysts anticipate that losses will continue to narrow over time.

David Meniane, CEO of CarParts.com, stated, “We believe that as consumer confidence rebounds, we will be well positioned to support them with the parts and resources they need."

Meanwhile, analysts predict the company’s revenue for the full year will increase by 2% to $675.13 million, before rising another 4% by 2024.

What's the Stock Price Prediction for CarParts.com?

Currently, three of the four analysts who cover PRTS have a "strong buy" recommendation for the stock, while one has a "moderate buy." Based on analysts' average price target of $6.25, Wall Street predicts a massive upside potential of about 103% in the next 12 months.

Furthermore, DA Davidson has assigned the stock a Street-high target price of $10, which represents an upside of 224% from current levels.

Since CarParts.com isn’t profitable yet, we cannot value it based on its earnings. So, based on its sales, it is priced at 0.26 times forward 2024 projected sales, which seems ridiculously cheap at the moment. Analysts predict CarParts.com revenue will grow 4.2% year-over-year to $703.6 million in 2024.

The Bottom Line on CarParts.com

In a world where convenience and quality matter, CarParts.com sets itself apart by providing its customers with dependable, affordable, and high-quality parts, which is probably why the company is seeing a continued boost in revenue. It is also working on saving costs and keeping its balance sheet stable.

However, note that penny stocks, though cheap, are also risky. With a consensus “strong buy” rating, Wall Street has an optimistic view of the stock’s near-term potential. For investors with a high-risk tolerance, the stock could be a good choice. However, I would suggest that risk-averse investors hold off from investing until CarParts.com's bottom line turns green.