CRMT - 3 Stocks to Buy to Benefit from the Red-Hot Used Car Market
Amid a global microchip shortage, it is getting tougher for electric vehicle (EV) companies to manufacture new cars in sufficient numbers to meet growing market demand. The demand is particularly high because people still prefer to commute while maintaining the social distance compelled by the COVID-19 health crisis. This, along with an unwillingness (and perhaps inability) by consumers to spend large amounts of money on new vehicles with the global economy still weak from the effects of the pandemic, is driving increased demand for used cars. Also, several used-car companies are now integrating advanced technologies in their platforms, making it much easier for customers to buy used cars online.
The Manheim Index, which is recognized as the premier indicator of pricing trends in the used vehicle market, hit a 191.4 value in mid-April, which represents a 52.2% year-over-year increase. And, according to Mordor Intelligence, the used car market is expected to increase at a CAGR of more than 10% over the next five years.
So, it could be beneficial now for investors to bet on used car companies Group 1 Automotive, Inc. (GPI), CarGurus, Inc. (CARG), and America’s Car-Mart, Inc. (CRMT) to capitalize on the thriving used-car market.
Group 1 Automotive, Inc. (GPI)
GPI is a new and used car retailer that owns and operates roughly 237 franchises at 184 dealership locations and 49 collision centers. The company also arranges related vehicle financing, sells service and insurance contracts, provides automotive maintenance and repair services, and sells vehicle parts. It operates in three geographic segments: The United States, United Kingdom and Brazil.
GPI’s gross profit for its fiscal year 2021 second quarter, ended December 31, 2020, has increased 3.7% year-over-year to $481.70 million. The company’s operating income has increased 55.5% year-over-year to $150.10 million. Also, its net profit increased 108.1% year-over-year to $100 million. Furthermore, GIP’s EPS was $5.43, up 111.3% year-over-year.
For the quarter ended March 31, 2021, analysts expect GPI’s EPS to come in at $4.43, representing a 166.9% year-over-year increase. It also surpassed the consensus EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 37.1% year-over-year to $2.92 billion for the quarter ending June 30, 2021.
On March 16, GPI acquired two Toyota dealerships in Hyannis and Orleans in Cape Cod. These dealerships are expected to add roughly $120 million in the company’s annualized revenues, thus significantly increasing its revenue. The stock has gained 235.6% over the past year and closed yesterday’s trading session at $164.05.
It’s no surprise that GPI has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value and Momentum along with a B grade for Growth. Click here to see GPI’s rating for Stability, Sentiment, and Quality.
GPI is ranked #5 of 25 stocks in the B-rated Auto-Dealers and Rentals industry.
CarGurus, Inc. (CARG)
CARG operates an online automotive marketplace that connects buyers and sellers of new and used cars worldwide. It also uses technology and data analytics to deliver a better car-shopping experience. The company’s products include Consumer Marketplace, Dealer Marketplace, Dealer Dashboard, Dealer Advertising and Customer Acquisition Products, and Auto Manufacturer. In addition to the United States, CARG operates online marketplaces in Canada, the United Kingdom, and Germany.
For its fiscal year 2021 third quarter (ended December 31, 2020), CARG’s operating income came in at $33.50 million, representing a 145.4% year-over-year rise. Its net profit for the quarter increased 91.1% year-over-year to $25.20 million. And its EPS increased 83.3% year-over-year to $0.22.
The company’s EPS for the quarter ended March 31, 2021 is expected to increase 21.1% year-over-year to $0.23. CARG’s revenue for the quarter ending June 30, 2021 is expected to come in at $166.35 million, which represents a 75.6% year-over-year increase. Also, CARG surpassed consensus EPS estimates in each of the trailing four quarters.
On April 22, 2021, CARG allowed early access for dealerships to preview CarGurus Convert, its latest digital retail product that is expected to help dealers afford their customers the ability to navigate most of their car purchasing journey online. The product is expected to give dealerships a jump-start in the deal making process, thus providing CARG an advantage over its peers. The stock has rallied more than 30% over the past year and closed yesterday’s trading session at $25.94.
CARG’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Quality, and a B grade for Growth, Momentum, and Value. In addition to these ratings, one can see CARG’s ratings for Stability and Sentiment here.
CARG is ranked #5 of 71 Stocks in the Internet industry.
America’s Car-Mart, Inc. (CRMT)
CRMT is an automotive retailer that is focused on the integrated auto sales and finance segment of the used car market. The company operates through its two operating subsidiaries: America's Car Mart, Inc. (Car-Mart of Arkansas) and Colonial Auto Finance, Inc. (Colonial). It has more than 2,000 associates and more than 150 dealerships across 12 states.
The company’s $200 million total revenue for its fiscal year 2020 fourth quarter, ended January 31, 2021, represents a 22.5% year-over year rise. CRMT’s net profit has increased more than 56.7% year-over-year to $19.90 million. Its EPS came in at $3.00, which represents a 56.3% year-over-year increase.
Analysts expect CRMT’s EPS and revenue to increase 107.4% and 12.7%, respectively, year-over-year, for the current quarter, ending April 30, 2021. CRMT has surpassed consensus EPS estimates in each of the trailing four quarters.
The company expanded its market reach by opening its 151st dealership, in Edmond, Oklahoma. This marks its 28th dealership in Oklahoma. The stock has rallied nearly 155.3% over the past year to close yesterday’s trading session at $149.40.
CRMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Momentum, along with a B grade for Quality and Growth. Click here to see additional POWR Ratings for CRMT (Sentiment, Value, and Stability).
CRMT is ranked #4 in the Auto-Dealers and Rentals industry.
GPI shares were trading at $165.82 per share on Tuesday afternoon, up $1.77 (+1.08%). Year-to-date, GPI has gained 26.70%, versus a 11.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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