Shares of online car retailer Cazoo (NYSE:CZOO) have been flying higher since the midweek session, likely on speculation tied to the company’s tiny float. As a result, the operator of the New York Stock Exchange halted trading multiple times on Thursday. What’s particularly intriguing is that the spike in CZOO stock lacks any explanatory company-specific catalyst.
Earlier this month, the U.K.-based enterprise — which aims to make the process of buying and selling cars as simple as any other e-commerce transaction — announced its intention to transition to a marketplace business model. This pivot would leverage the strength of the Cazoo brand and the reach of the platform.
According to the company’s press release, Cazoo could help facilitate transactions for the 13,000 car dealers operating in the U.K.’s highly fragmented used-car market. Further, the statement notes that the Cazoo name is now one of the top five most recognized British automotive brands. This advantage has enabled the company to sell close to 160,000 retail cars entirely online since 2019.
Still, one of the main concerns is profitability. Per data from Gurufocus, the company’s trailing 12-month (TTM) loss is $753 million.
CZOO Stock Rises Despite Serious Concerns
However, net losses are just one of the red flags tied to CZOO stock. Others include poor financial strength along with poor quality of earnings. In addition, Cazoo prints an Altman Z-Score of 2.06 below breakeven, which indicates distress. This metric implies bankruptcy risk in the next two years.
Not surprisingly given this context, CZOO stock suffered a loss of 49% since the beginning of this year. Over the past 52 weeks, it’s down almost 98%, an alarming statistic no matter how one frames it. Since its 2020 public market debut, Cazoo has lost 99.98%, per Google Finance.
However, in the trailing five sessions, CZOO stock managed to more than double in value. Further, shares popped up over 40% on Thursday. That’s despite intervention by the NYSE operator, which halted trading of CZOO at 9:37 a.m. ET and 10:26 a.m. ET. The reason specified was for “Limit Up Limit Down (LULD).” LULD is a mechanism to prevent shares from trading outside of specified price bands.
Cazoo’s extremely small float could be the main contributor to the recent dramatic rise. Per Yahoo Finance, this metric sits at only 95,560 shares. Therefore, any concerted purchases could have an outsized influence on pricing dynamics.
Why It Matters
Only two analysts have covered CZOO stock in the past year: UBS analyst Adam Berlin and Citi’s Thomas Singlehurst. Both rated shares a “hold.” Per TipRanks, the company will disclose its results for the fourth quarter of fiscal 2023 on April 4.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
