Why Vroom Stock Is Zooming 15% Higher Tuesday Morning

Shares of Vroom (NASDAQ: VRM), a used vehicle e-commerce platform offering a digital approach to buying used vehicles, jumped as much as 15.2% higher Tuesday morning after competitor Carvana announced it expected record results in the third quarter.

Vroom and Carvana share many business strengths, including that the two business models were ideal to serve customers at a time of social distancing while most auto stocks struggled. The COVID-19 pandemic has almost certainly accelerated consumers' adoption of online car buying, and with Carvana announcing it expects records in total revenue, retail units sold, EBITDA margin, and gross profit per unit (GPU) for the third quarter, investors are betting that Vroom is seeing much of the same demand strength.

In a vote of confidence, Goldman Sachs upgraded ratings of Vroom and Carvana from neutral to buy: "We continue to see dynamics surrounding COVID-19 accelerating the shift online in used autos, but beyond that we expect Carvana and Vroom to drive the shift online by leveraging national scale to aggregate demand in a highly fragmented market and take share from the long-tail of small dealers and peer-to-peer market," noted Goldman Sachs analyst Daniel Powell and his team.

Source Fool.com