Evaluating Cars.com (CARS) as a High-EPS Growth Buy in a Flat Revenue Environment

The investment thesis for Cars.com (CARS) hinges on a paradox: robust earnings per share (EPS) growth amid stagnant revenue. This disconnect raises critical questions about the sustainability of its financial performance and whether the stock warrants a “high-EPS growth buy” label in a market where top-line expansion is muted.

EPS Growth: A Tale of Share Buybacks and Cost Discipline

According to a report by Yahoo Finance, Cars.com’s non-GAAP EPS for Q2 2025 came in at $0.41, narrowly missing estimates but reflecting a 147% year-over-year increase from the $0.17 EPS reported in Q2 2024 [1]. This surge is not driven by organic profit growth but rather by aggressive share repurchases. The company repurchased 2.1 million shares in Q2 2025 alone, raising its full-year buyback target to $70–$90 million [1]. By reducing the share count, Cars.com artificially inflates EPS, masking underlying challenges in revenue generation.

This strategy aligns with broader trends in the Interactive Media and Services sector, where companies often prioritize earnings management over revenue expansion. For instance, in 2024, Cars.com’s adjusted net income per diluted share rose by 8% to $1.71, even as net income per share fell by 59% to $0.72 [2]. The emphasis on adjusted metrics underscores a deliberate shift toward cost-cutting and capital allocation over scalable growth.

Flat Revenue: A Warning Sign in a Competitive Market

While EPS appears to thrive, revenue performance tells a different story. In Q2 2025, revenue remained flat at $178.7 million, matching the $178.89 million reported in Q2 2024 [1]. This stagnation contrasts sharply with the 4.2% annualized revenue growth forecast for the next three years, which lags behind the 10% industry average [1].

The lack of top-line momentum is further highlighted by Cars.com’s full-year 2024 results: revenue grew by just 4% to $719.2 million, despite a 29.2% adjusted EBITDA margin [2]. This suggests that the company is squeezing profitability from a shrinking pie rather than expanding its market share. Analysts at TradingView note that the 2% year-over-year increase in monthly unique visitors—driven by “strategic marketing investments”—is insufficient to offset declining average visitor numbers in recent quarters [3].

The Operational Disconnect: Dealer Growth vs. Revenue Plateau

Cars.com’s operational metrics offer a glimmer of hope. The company reported 19,412 dealer customers in Q2 2025, a 1% sequential increase and the highest in three years [1]. This growth, coupled with a 28.5% adjusted EBITDA margin, indicates strong unit economics. However, translating dealer expansion into revenue remains elusive.

The root cause may lie in pricing pressures and market saturation. As Investing.com highlights, Cars.com’s Q2 2025 earnings call revealed that “adjusted EBITDA aligned with estimates, but revenue fell short due to lower-than-expected transaction volumes” [3]. In a sector dominated by digital platforms and OEM partnerships, incremental gains in dealer count are not enough to drive revenue without innovation in service offerings or pricing power.

Implications for Investors: A High-Risk, High-Reward Proposition

For investors, the key question is whether Cars.com’s EPS growth is a sustainable catalyst for long-term value creation. The company’s reliance on share buybacks to boost earnings raises concerns about financial flexibility, particularly if cash flow constraints emerge. Additionally, the flat revenue trend suggests that Cars.com may be nearing the limits of its current business model.

However, the 28.5% adjusted EBITDA margin and $70–$90 million share repurchase target indicate a commitment to capital efficiency [1]. If the company can leverage its dealer network to introduce higher-margin services—such as digital retailing tools or data analytics—there may be untapped potential to reignite revenue growth.

Conclusion: A Cautious Case for Selective Investors

Cars.com presents a mixed bag for investors. While its EPS trajectory is impressive, the lack of revenue growth and reliance on buybacks create a fragile foundation. The stock may appeal to those prioritizing short-term earnings momentum over long-term scalability, but it carries risks in a market where revenue diversification is critical.

Investors should monitor Cars.com’s ability to innovate beyond its core platform and expand into adjacent services. Until then, the disconnect between EPS and revenue remains a cautionary tale of earnings engineering in a flat market.

Source:
[1] Yahoo Finance, “Cars.com Q2 Earnings Results: Revenue In...” [https://finance.yahoo.com/news/cars-com-nyse-cars-q2-185853347.html]
[2] Cars.com, “Reports Fourth Quarter and Full Year 2024 Results” [https://www.cars.com/articles/cars-com-reports-fourth-quarter-and-full-year-2024-results-505688/]
[3] Investing.com, “Earnings Call Transcript: Cars.com Q2 2025...” [https://www.investing.com/news/transcripts/earnings-call-transcript-carscom-q2-2025-misses-eps-forecast-stock-drops-93CH-4177983]