The automotive industry is the bedrock of the American economy and has experienced significant growth over the past few years despite the macroeconomic headwinds.
Moreover, the increasing interest in certified used cars, the development of electric vehicles, the growth of omnichannel marketing strategies, and the rising demand for auto parts are expected to drive the expansion of the American auto dealership market.
Hence, I think it might be wise to invest in top auto dealer stocks Copart, Inc. (CPRT), Asbury Automotive Group, Inc. (ABG), and Rush Enterprises, Inc. (RUSHA).
The growing consumer interest in certified used cars, coupled with the active expansion of the dealership network in the country by key OEMs, are expected to support the growth of the auto dealer market. The US automotive dealership market is expected to reach $257.30 billion, registering a CAGR of above 4% over the next five years.
Moreover, the used car market is driven by the increasing number of new models of cars launched due to high competition, declining ownership cycle of vehicles among urban consumers in emerging countries, and excellent value for money proposition of used cars. The used car market is forecast to grow by $703.33 billion during 2022-2027, accelerating at a CAGR of 6.7%.
Despite global disruptions, the auto industry’s focus on developing electric vehicles and improving battery performance and charging infrastructure is expected to yield positive results. Revenue in the Electric Vehicles market is expected to grow at a CAGR of 22.8% until 2027.
In addition, car buying trends are continuously evolving, and omnichannel marketing is widely expected to be a key driver of growth for the car dealer industry in the coming years. By combining digital channels and traditional marketing tactics, auto dealerships are creating seamless and personalized customer experiences.
Moreover, the auto parts industry is expected to benefit significantly from the aging vehicle plying in the United States. The average age of passenger cars and light trucks in the U.S. is over 12 years. The auto parts manufacturing market is expected to grow at a CAGR of 3.5% until 2030.
Let’s take a look at the stocks mentioned above:
Copart, Inc. (CPRT)
CPRT provides online auctions and vehicle remarketing services. It offers a range of services for processing and selling vehicles over the internet through its virtual bidding third-generation internet auction-style sales technology to vehicle sellers, insurance companies, banks, and finance companies, charities.
CPRT’s trailing-12-month EBITDA margin of 41.27% is 212.4% higher than the 13.21% industry average. Its trailing-12-month gross profit margin of 44.83% is 50.7% higher than the 29.75% industry average.
CPRT’s total service revenues and vehicle sales increased 10.3% year-over-year to $956.72 million in the second quarter, which ended January 31, 2023. The company’s net income increased 2.2% year-over-year to $293.68 million, while net income per common share rose 1.7% year-over-year to $0.61.
Analysts expect CPRT’s revenue for the fiscal third quarter that ended April 2023 to be $1 billion, indicating a 6.8% year-over-year growth. The company’s EPS is expected to increase 8.9% year-over-year to $0.64 for the same quarter. Additionally, it has topped consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 38.9% over the past six months to close the last trading session at $76.74.
CPRT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CPRT also has an A grade for Sentiment and a B in Stability and Quality. It is ranked #6 out of 21 stocks in the Auto Dealers & Rentals industry.
To access additional ratings for CPRT’s Growth, Value, and Momentum, click here.
Asbury Automotive Group, Inc. (ABG)
ABG operates as an automotive retailer in the United States. It offers a range of automotive products and services, including new and used vehicles; vehicle repair and maintenance services, replacement parts, and collision repair services.
ABG’s forward EV/EBITDA of 7.06x is 25.2% lower than the industry average of 9.45x. Its forward Price/Sales multiple of 0.29 is 65.7% lower than the industry average of 0.85.
Its trailing-12-month EBIT margin of 8.25% is 5.8% higher than the 7.79% industry average. Its trailing-12-month net income margin of 6.46% is 45.6% higher than the 4.44% industry average.
During the fiscal fourth quarter that ended December 31, 2022, ABG’s total revenue increased 39.6% year-over-year to $3.71 billion. Adjusted net income grew 24.2% year-over-year to $201.90 million, while its adjusted EPS increased 22.3% year-over-year to $9.12.
ABG’s EPS is expected to be $8.04 for the fiscal first quarter that ended March 2023. The company’s revenue for the same quarter is expected to be $3.81 billion. Additionally, it has topped consensus EPS estimates in each of the trailing four quarters.
Shares of ABG have gained 32.3% over the past year to close the last trading session at $205.27.
ABG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Value. Within the same industry, it is ranked #7.
Beyond what is stated above, we’ve also rated ABG for Growth, Stability, Momentum, Quality, and Sentiment. Get all ABG ratings here.
Rush Enterprises, Inc. (RUSHA)
RUSHA operates as an integrated retailer of commercial vehicles and related services in the United States and Canada. The company operates a network of commercial vehicle dealerships under the Rush Truck Centers name.
RUSHA’s forward EV/Sales of 0.60x is 63% lower than the industry average of 1.61x. Its forward Price/Sales multiple of 0.46 is 64.3% lower than the industry average of 1.28.
Its trailing-12-month asset turnover ratio of 2.05x is 156.2% higher than the 0.80x industry average. Its trailing-12-month return on total capital of 10.82% is 53.9% higher than the 7.03% industry average.
The company pays an annual dividend of $0.84, which translates to a yield of 1.55% at the current price level. It has a four-year average dividend yield of 1.32%.
RUSHA’s total revenue rose 43.5% year-over-year to $1.88 billion in the fourth quarter that ended December 31, 2022. The company’s net income increased 43.2% year-over-year to $98.30 million, while net income attributable to RUSHA’s per share of common share increased 47.5% year-over-year to $1.74.
Street expects RUSHA’s revenue for the fiscal first quarter ended March 2023 to be $1.77 billion, indicating a 13% year-over-year growth. The company’s EPS is expected to be $1.42 for the same quarter. Additionally, it has topped consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 14.1% over the past six months to close the last trading session at $54.05.
RUSHA’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
RUSHA has a B grade for Growth, Value, and Sentiment. It is ranked #2 in the same industry.
Click here for the additional POWR Ratings for RUSHA (Quality, Momentum, and Stability).
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CPRT shares were trading at $76.21 per share on Friday afternoon, down $0.53 (-0.69%). Year-to-date, CPRT has gained 25.16%, versus a 7.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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