VRM stock is on the verge of a disaster as inflation continues
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If you happen to have a crystal ball that tells which company the masses of memes are going to anoint next, that might be the only thing that could help the online auto retail business. vroom (NASDAQ:VRM). Otherwise, this direct competitor of carvana (NYSE:CVNA) – which is not doing very well either – should be avoided. VRM stock losses tell you everything you need to know.
Year-to-date, just before the April 11 session open, Vroom found itself down 80%. Over the same period, its rival Carvana has hemorrhaged over 55%, which looks tragically decent compared to the crimson-tinged VRM stock. Even more problematic, Vroom has cratered nearly 95% over the past year. Stocks can’t get much worse than this without risking a total implosion.
But to be fair, many issues affecting Vroom are related to macroeconomic factors that no company can control. As I mentioned before, some analysts are worried about automakers because of the skyrocketing inflation rate.
In a nutshell, most people who buy new cars – about 85% of them – finance their vehicles. Of course, the higher borrowing costs associated with rising interest rates to keep up with inflation can hamper demand. Certainly, Vroom specializes in used vehicles. However, the basis of the argument remains unchanged: higher borrowing costs for new or used cars will likely impact consumer behavior.
The counter-argument to the inflation-related story is that most Americans depend on cars for getting around and other major endeavors. Therefore, they have no choice but to bear the higher rates. Fair enough. But the problem for stock VRM in particular is that consumers have many lower-cost choices to get the cars they need.
I understand that Vroom has appeal as a convenient online acquisition of cars without haggling with sellers. But with inflation rising faster than the rate of wage growth, any means of reducing costs will likely lure consumers into this new paradigm. After all, this convenience comes at a price. Thus, VRM stock may succumb to analog competition, a development that the underlying company will struggle to cope with.
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As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.