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Comparing Total Returns of 3 Auto Groups

Penske, Group 1 and Asbury boast predictable revenue and Ebitda, but what about their valuations?

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Nov 19, 2020
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Three auto retailing groups currently have places on the Undervalued Predictable screener list at GuruFocus.

The "predictable" half of the formula refers to the consistency of revenue and earnings and the ability of companies to bring home profits despite the short-term challenges they face each quarter and year. The "undervalued" half refers to pricing that is attractive and might even provide a margin of safety.

These three auto retailing groups were among the companies that made it through the screener: Penske Automotive Group Inc. (

PAG, Financial), Group 1 Automotive Inc. (GPI, Financial), and Asbury Automotive Group Inc. (ABG, Financial). In press releases about their third-quarter 2020 results, they describe themselves as follows:

  • "[Penski is] an international transportation services company that operates automotive and commercial truck dealerships principally in the United States, the United Kingdom, Canada, and Western Europe, and distributes commercial vehicles, diesel engines, gas engines, power systems and related parts and services principally in Australia and New Zealand."
  • "Group 1 owns and operates 185 automotive dealerships, 241 franchises, and 49 collision centers in the United States, the United Kingdom and Brazil that offer 31 brands of automobiles. Through its dealerships, the Company sells new and used cars and light trucks; arranges related vehicle financing; sells service contracts; provides automotive maintenance and repair services; and sells vehicle parts."
  • "Asbury currently operates 90 dealerships, consisting of 113 franchises, representing 31 domestic and foreign brands of vehicles. Asbury also operates 25 collision repair centers. Asbury offers customers an extensive range of automotive products and services, including new and used vehicle sales and related financing and insurance, vehicle maintenance and repair services, replacement parts and service contracts."

Next, let's look at their total returns, which are generally described as the sum of the share price appreciation and dividends, in orderto better determine whether these stocks could represent investment opportunities.


This 10-year price chart shows that Penske's share price has risen by an average of 8.41% per year:


It pays a dividend of 2.08% per year, and it has reduced its shares outstanding by an average of 1.00% per year over the past decade:


Putting the numbers together for total returns, we see 8.41% + 2.08% = 10.49%, or 8.41% + 2.08% + 1.00% = 11.49%. Over the past decade, then, Penske's average total return has been between 10.49% and 11.49% per year.

Group 1

Group 1 Automotive has delivered an average capital gain of 8.11% per year over the past decade:


Its current dividend yield is 0.48% per year. Over the past decade, it has reduced its share count by an average of 2.21% per year:


Total returns are 8.11% + 0.48% = 8.59%, or 8.11% + 0.48% + 2.21% = 10.80%. Without share buybacks, Group 1 has provided an average total return of 8.59% per year; with buybacks, the return jumps to 10.80%.


Shareholders in Asbury Automotive have enjoyed higher capital gains, with the appreciation averaging 16.21% per year over the past decade:


The company does not pay dividends. However, Asbury has been repurchasing shares more aggressively than Penske and Group 1 at 6.63% per year on average:


That provides average total returns of 16.21% + 0.00% = 16.21%, or 16.21% + 0.00% + 6.63% = 22.84%. Clearly, Asbury has generated the highest average total return over the past 10 years compared to the other two, whether we consider share buybacks or not.

Other considerations

Buy and sell decisions should be made on more than total returns, although that may be a place to good start when developing your shortlist. Let's look at some other factors for these three companies.

Penske carries a 4 out of 5 stars GuruFocus business predictability rating, while Group 1 and Asbury both earned 5 out of 5 stars. In other words, all three have delivered predictable results in the past. According to GuruFocus:

"We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earnings before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business."

This chart below shows revenues and trendlines for each of the three companies over the past decade:


Next, we have a 10-year chart for Ebitda, with Penske posting the best growth rate:


For the profitabilty rating, GuruFocus rates Asbury 8 out of 10, Group 1 8 out of 10 and Penski 7 out of 10.

On financial strength, Penske 4 gets a 4 out of 10, Group 1 a 5 out of 10 and Asbury a 4 out of 10.

Summing up financial strength and profitability, we might say that their financial strength is mediocre at best, but all three auto groups are solidly profitably.

What about their valuations? Based on the GuruFocus Value chart, we have these ratings, all three are significantly overvalued. If all three are shown as significantly overvalued, why did they make it through a screener designed to weed out overvalued stocks? This is because the different valuations are based on different criteria. These are the criteria for the GuruFocus Value chart:

  • Historical multiples of metrics such as PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow.
  • A GuruFocus adjustment factor based on the company's past returns and growth.
  • Future estimates of a company's business performance from Morningstar analysts.

On the other hand, the screener uses discounted cash flow or discounted earnings to determine how undervalued or overvalued a stock is. The GuruFocus DCF calculator gives the following margins of safety for the three companies:

  • Group 1: 61.92% margin of safety.
  • Penske: 61.80% margin of safety.
  • Asbury: 59.69% margin of safety.


Asbury, Group 1 and Penske are automotive retailers that offer a range of 10-year historical total returns, with Asbury the clear leader. Each of the stocks made it through the Undervalued Predictable screener because of their strengths, and theoretically (based on certain calculations) their valuations. All three appear to be well managed and good prospects for the next five to 10 years, in my opinion.

Valuation is more of a challenge. As I noted above, these are two valuation methods that offer widely different results. Personally, I would give more credence to the GuruFocus Valuation than to the discounted cash flow calculation because all three stocks are currently trading at or near 10-year highs.

Therefore, I believe value investors would shy away from all three stocks. For growth investors, on the other hand, these stocks and particularly Asbury may be of interest. None of the three is likely to get much attention from income investors.

Disclosure: I do not own shares in any of the companies named in this article.

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