January 27, 2022


Half the Automotive

Here’s Why Cars.com Stock Is Bucking the Trend Today

What happened

Shares of automotive marketplace platform Cars.com (NYSE:CARS) are bucking the trend in the markets today. While the Dow Jones Industrial Average is dropping almost 1,000 points, or 2.75%, Cars.com stock is soaring. As of 11:39 a.m. ET, Cars.com shares were trading near highs of the day, up just over 19%. 

So what

The surge in shares comes on the first trading day after it was announced that Cars.com stock will be added to the S&P SmallCap 600 index. That change won’t occur until Dec. 2, but a move into an index will cause some mutual and exchange-traded index funds to buy the shares. That has other investors jumping in ahead of them today. 

People shaking hands while one hands car keys to the other.

Image source: Getty Images.

Now what

Cars.com will replace DSP Group, which is being acquired by S&P MidCap 400 member Synaptics in a deal expected to close Dec. 2. Today’s surge in the share price puts Cars.com’s stock at a level not seen since August 2019. It comes three weeks after the company reported solid third-quarter financial results. It announced that revenue grew 8% year over year and that continued growth in free cash flow has jumped 17% in the first nine months of 2021, compared with the prior-year period. 

Cars.com management also expects revenue in the fourth quarter to continue to increase slightly above third-quarter results. The company also recently announced the closing of its deal to acquire CreditIQ, a fintech platform that Cars.com says “provides instant online loan screening and approvals to facilitate online car buying.” 

For today, however, buyers of Cars.com shares are just planning on getting in prior to fund managers adding the company to their portfolios after it joins the new index. And it’s causing quite a jump on a day filled with red ink in the markets. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.