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Why the Carsales.Com Ltd share price crashed lower today

car

The market may have fallen into the red today, but the Carsales.Com Ltd (ASX: CAR) share price has sunk even deeper.

The car listing company’s shares are currently down 5% to $14.30, compared to a 0.5% decline by the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

Why are its shares lower?

Today’s decline appears to be down to a broker note out of Credit Suisse this morning. As you might have guessed, it wasn’t a positive one.

According to the release, analysts at the investment bank have downgraded Carsales.com’s shares to an underperform rating from neutral.

This is the second broker downgrade that Carsales.com has received in recent weeks. Previously, fellow investment bank UBS had downgraded the company shares to a sell rating from neutral as well.

Its analysts stated their belief that the growth being built into its share price was overly optimistic and felt there was a possibility that it would fail to live up to expectations in FY 2018.

Should you sell?

Despite its strong market-position, I’m not a big fan of Carsales.com and believe it is likely to fall short of the market’s lofty expectations this year. This would make it three underwhelming years in a row.

So with its shares changing hands at a reasonable premium over the market average at 30x trailing earnings, investors may be better off looking elsewhere in the market.

Investors looking at tech shares with strong growth potential may want to consider Aristocrat Leisure Limited (ASX: ALL) due to its fast-growing digital segment, or Altium Limited (ASX: ALU) for its increasingly popular and award-winning printed circuit board design software and exposure to the rapidly growing Internet of Things market.

I think these two shares will not only vastly outperform Carsales.com this year, but also the market return.

Here are three more growth shares that I think would be better than Carsales.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended carsales.com Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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