Why Alta Fox Capital's $41M Bet on CarGurus Signals a Major Opportunity in the Online Auto Market

, allocating 9.12% of its portfolio to the digital automotive platform, is more than a bold move-it's a signal to the market that the online auto sector is entering a new phase of growth. , the stock appears to be a rare blend of disciplined execution and untapped potential. Let's break down why this bet could pay off handsomely for investors.

CarGurus: A Cash Flow Powerhouse with Market Leadership

CarGurus' Q3 2025 results underscore its dominance in the digital automotive space. The company in its Marketplace segment, driven by subscription-based listings and a 5% increase in U.S. paying dealers. Its 17% FCF margin-up 4 percentage points from the prior year-reflects a business model that prioritizes profitability without sacrificing scale. By comparison, traditional automakers and even peers in the online auto sector struggle to maintain margins above 10%. According to data, CarGurus has cemented its position as the No. 1 visited automotive shopping site in the U.S., . and 7,930 international paying dealers as of September 2025. This leadership isn't accidental. The company's , such as and CG Discover, have boosted lead conversion rates and deepened dealer integration, creating a flywheel effect that's hard to replicate.

Valuation Metrics Suggest a Significant Undervaluation

While CarGurus trades at a 15x P/FCF multiple, its intrinsic value appears far higher. A (DCF) analysis -implying a 75.3% discount to current pricing. This gap is even more striking when compared to peers. For instance, Cars.com (CARS) trades at a 4.97x P/FCF according to Tipranks, according to WiseSheets. , but its 40.48% Return on Equity (ROE) and debt-free balance sheet justify a premium.

The key differentiator? CarGurus' ability to generate consistent, high-margin cash flow. Its 17% FCF margin dwarfs the industry average, and its forward P/E of 14.01 is below the S&P 500's 36.20, suggesting it's priced for caution rather than optimism. and $316.9 million in earnings by 2028, .

A Sector on the Cusp of Disruption

The online auto market is poised for explosive growth as consumers increasingly embrace digital tools. CarGurus' AI-driven platform aligns perfectly with this trend. According to a Q3 2025 industry report, , and AI tools are accelerating decision-making. Meanwhile, regulatory shifts-such as the impending expiration of EV tax credits-are pushing buyers toward value-oriented used cars, a segment where CarGurus excels. According to data, CarGurus has cemented its position as the No. 1 visited automotive shopping site in the U.S., with over 25,743 U.S. and 7,930 international paying dealers as of September 2025.

Alta Fox's 9.1% allocation to CarGurus isn't just a vote of confidence-it's a strategic bet on a company that's outpacing both traditional automakers and digital peers. With a stock repurchase program that's already in Q3 2025, CarGurus is demonstrating a commitment to shareholder value that's rare in today's market.

The Bottom Line

CarGurus is a textbook example of a "value-growth" stock: a leader in a high-margin sector with a valuation that doesn't reflect its potential. Alta Fox's $41 million stake-backed by CarGurus' 17% FCF margins, market leadership, and AI-driven innovation-positions it as a prime candidate for outperformance. For investors willing to look beyond short-term volatility, this is a rare opportunity to capitalize on a company that's building the future of automotive retail.