To Buy or Not to Buy New IPO, Mister Car Wash?

Mister Car Wash (MCW), a star service as a service (SaaS) company, specializes in unlimited car washes for a flat monthly fee. This car wash chain company went public recently, on June 25, 2021. The corporation’s very high valuation, at over $6B, has intrigued investors and analysts causing them to pay attention to the Mister Car Wash.

One analyst that became intrigued in MCW is Ranal J. Konik from Jefferies. Konik describes the company as a “strong brand, growing store fleet, and leading membership program are likely to further bolster Mister’s competitive positioning in the large, expanding, and highly fragmented US Car Wash industry.”

MCW differentiates itself by offering a comprehensive group of services to support specific aspects of vehicle maintenance, including car wash and detail services, tiered memberships, unlimited access to about 350 locations and other exclusive perks.

Konik sees MCW as a leader in the $11B US car wash industry, which is growing – estimated 4% growth between 2020 and 2023 – and highly fragmented. The company is in a good position in this industry, as it is the number one operator in the market based on number of locations and is expected to continue thriving as the industry shifts to Do-It-For-Me (DIFM) car washing instead of at-home-Do-It-Yourself (DIY). Right now, MCW only has about 5% of the market share so Konik sees a wide opportunity of room to grow.

Unit growth is in the foreseeable future for Mister Car Wash. We believe they have a strong existing unit footprint, a dual-format approach with express exterior and interior cleaning, and they have already made investments in its fleet that have set the company up for “continued robust growth”. The company also has superior unit level economics compared to its competition, AUV of about $2M while the 2nd largest company has about $1M. This causes us to believe that there is a well-balanced approach to HSD% unit growth.

Unlimited Wash Club (UWC) allows the company to predict recurring revenue and cash flow. “Over the last five years, MCW has evolved into a heavily subscription-based business, as UWC, which has ~1.4M active members (as of 1Q), accounts for ~70% of total volume and ~60% of total revenue. As a result of customer conversion to UWC, Mister witnesses a +5x lift in value, shifting traditional car wash customers from visiting ~4x per year to ~1x per week. Additionally, 45% of UWC members washed at locations other than the unit they originally signed up at over the last two months (as of May 2021).”

Konik rates this new IPO has a Buy, with a price target of $30.00 and a 41.78% upside.

On the Street, there is some disagreement on whether the stock should be held or bought. Out of 8 analysts, 3 rate MCW as a Buy, and 5 rate it as a Hold. The average price target is $23.63 with an 11.67% upside, and a market price of $21.16.