CarParts.com (PRTS): Is the $1.90 Target Price Hiding a Hidden Gem or Overvalued Risk?

The automotive aftermarket sector has long been a battleground for e-commerce dominance, and CarParts.com (NASDAQ: PRTS) finds itself at a pivotal crossroads. Despite a challenging Q1 2025 marked by declining revenue and widening losses, analysts have maintained a price target of $1.90—a 78% premium to its current $1.12 price. To determine whether this target reflects reality or wishful thinking, we must dissect the company’s strategic moves, overlooked risks, and the true drivers of its valuation.

The Bull Case: Margins, Mobility, and Market Share

Analysts cite three pillars supporting the $1.90 target: e-commerce dominance, margin resilience, and strategic pivots.

1. E-Commerce Leadership: CarParts.com claims 900,000 mobile app downloads to date, a critical channel for repeat customers. The app’s sticky user base (with 5,000+ paid memberships sold in Q1) generates high-margin fee income, offsetting traditional retail declines.
2. Margin Turnaround: Management highlighted early Q2 2025 revenue growth exceeding 10% YoY—a stark reversal from Q1’s 11% drop. This uptick, driven by reduced marketing spend and a focus on high-income, less price-sensitive customers, suggests margin expansion could return.
3. Supply Chain Evolution: The new semi-automated Las Vegas distribution center, handling 25% of shipments, aims to slash last-mile costs. While inventory rose to $94.2M (vs. $90.4M in 2024), this investment could improve inventory turnover over time—a key metric to watch.

The Overlooked Risks: EVs, Competition, and Valuation Realities

Bears argue the $1.90 target ignores three critical threats:

1. Electric Vehicle (EV) Adoption: CarParts.com’s core business relies on traditional combustion engine parts. EVs, while still a small percentage of the market, are growing at ~5% annually in the U.S. The company has not disclosed EV-specific product lines, leaving it vulnerable to structural demand shifts.
2. Competitive Erosion: Non-compliant parts (e.g., counterfeit lights/mirrors) are flooding the market, squeezing margins. Competitors like AutoZone and Advance Auto Parts are also digitizing aggressively, intensifying price wars.
3. Valuation Traps: With a trailing twelve-month net loss of $49.41M, PRTS’s forward P/E is “N/A”—a red flag. The $1.90 target assumes a turnaround in profitability, but the path is unclear. Even if Q2’s 10% revenue growth continues, EBITDA remains negative, and debt-free balance sheets won’t save a company losing money.

The Hidden Opportunity: Underappreciated Catalysts

Bulls may have one overlooked card to play: wholesale and commercial sales expansion. Management emphasized shifting focus to B2B customers, which often demand higher-margin bulk orders. If CarParts can replicate its retail app success in B2B logistics, this could stabilize margins faster than expected. Additionally, the Las Vegas warehouse’s efficiency gains—once fully operational—might reduce COGS and improve turnover ratios.

Final Analysis: Act Now, But With Caution

The $1.90 price target is half optimism, half gamble. On one hand, PRTS’s strategic moves (mobile app dominance, B2B pivot) hint at a path to profitability. The current $1.12 price reflects investor skepticism, offering a margin of safety. On the other, EVs, inventory bloat, and thin margins pose existential risks.

Actionable Takeaway: - Buy if: Inventory turnover improves to >1.5x by Q4 2025, and EBITDA turns positive. - Hold if: The company announces EV-related product lines or strategic acquisitions to diversify revenue. - Sell if: Competitors’ price wars deepen, or EV adoption accelerates beyond 7% annually.

The stock’s current valuation—trading at just 1.5x sales—could be a steal if PRTS executes its turnaround. But investors must weigh the risks of a sector in flux. For now, the $1.90 target is neither fully justified nor entirely overhyped—it’s a high-risk, high-reward call for aggressive investors willing to bet on management’s execution.

Act decisively, but with hedged expectations. The next 12 months will reveal whether CarParts.com is a comeback story or a cautionary tale.