ACV Auctions share prices aren’t just about rooting for a local company to succeed.
A lot of people around town have a lot of money tied up in those shares.
So it’s been disconcerting for many to watch the prices decline – slowly but steadily – since the successful IPO on the NASDAQ stock market in March.
From the $37 peak in April to the moment two weeks ago that shares fell below the $25 IPO sale price, ACV (ACVA) shareholders have seen a lot of value evaporate.
It’s doubly strange because the company posted strong first-quarter results, with $69 million in first-quarter revenue, up 64% from the same period last year.
One of the company’s analysts said there are a few things that are likely contributing to the share price decline.
Flooding the market
ACV shares were still selling above $33 in May when the company announced that “the conditions for the partial early release from lockup have been met.”
That meant that some of the firm's private investors – who typically can’t sell until six months after an IPO – were free to do so just two months after the fact. A total of 25% of the company’s eligible holdings was released May 18.
Share prices dropped from $33 to $27 from May 11 to 18. They haven’t recovered.
“My sense is you have some of the early stage VC investors selling, which has put pressure on the stock,” said Ali Faghri, managing director at Guggenheim Partners, which follows ACV’s stock.
The increased number of shares available is coinciding with other challenges, Faghri said.
“There are some broader industry concerns about weak wholesale auction volumes near-term,” he wrote. “Vehicle supply is very tight right now, and dealers aren’t sending many cars to auction, so they have sufficient retail inventory.”
Increasing competition
One of the premises about an upstart company disrupting a lucrative industry is that the existing corporations are going to fight back.
That’s nothing new to ACV-watchers in Buffalo, who have watched the company and its competitors acknowledge the intensely competitive environment.
One of those competitors, Indianapolis-based KAR Auction Services, is among the competitors that have showcased strong digital momentum in the pandemic.
“I think some investors see risk that increasing competition" — from both auction incumbents like KAR and online-only competitors like CarOffer — "could start to impact ACV’s growth outlook,” Faghri said.
The upshot
Guggenheim initiated coverage of ACV in April with a price target of $43, recommending that investors buy the stock. Faghri said that he doesn’t expect near-term supply issues to have a meaningful impact on ACV’s growth, given the significant market share gains it has already reported and the ongoing shift toward digital auctions.
Faghri believes ACV will reward investors who continue to believe in its long-term outlook as a market leader.
“Our work shows that ACV continues to command a significant market-0share advantage in the digital dealer to dealer auction market which we believe is sustainable,” he said.
