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These 3 Automotive Dealers Are Good Investments

July 24, 2014 | About:

A day or two ago, a relative of mine purchased a used car. Presently, despite the fact that sales of new vehicles in the U.S. have been increasing and are relied upon to hit 16 million units in 2014, the benefits of purchasing a used car can't be disregarded. Lower devaluation, diminished insurance costs and registration fees, and saving a considerable measure of cash over another car are some paramount considerations.

That is the reason my cousin strove for a used Chevrolet Impala and he is about content with what he got for the cash. The car comes with a great deal of features and technology and he is still getting used to them. His experience at purchasing a used car was an exceptionally smooth one and the Carmax (NYSE:KMX) dealership he settled on was extremely co-operative.

And afterward I thought, if the benefits of a used car are very substantial, then investing in companies that are occupied with the used car business in some way should also be a lucrative thought. What's more it ended up being that route as the accompanying outline shows.

We should investigate each of them one by one.


Carmax is the biggest name in the used car industry in the U.s. With a market top of $11 billion, towers over its peers. It provides buyers with incredible adaptability as they can find models online and look at cars whenever the timing is ideal. Carmax also allows customers to exchange their old cars and given my cousin's purchasing experience, I believe that the organization's method for working together is really solid.

That is likely the reason why Carmax's first-quarter results released in June were a record. The organization revenue increased 19% from the year-prior period to $3.31 billion. Complete units sold increased 22% and aggregate used car sales increased 17% from the year prior period. The organization believes that spectacular execution on its part prompted higher sales.

Carmax has been increasing its footprints in various markets and had opened three superstores in the first quarter. It also has a share repurchase arrange set up to return money to shareholders and had $463.5 million value of share repurchase approval left at the end of the previous quarter.

Lithia Motors

Lithia Motors (NYSE:LAD) has been the best performer of the part in terms of share value appreciation. The organization sells both used and new cars and fundamentally covers the western and Midwestern piece of the U.s. Lithia has been developing through acquisitions and had procured Bitterroot Toyota in Missoula, Montana, last year.

In the as of late reported second quarter, Lithia reported the highest quarterly adjusted net income in its history. Adjusted net income had hopped an incredible 42% from the year prior period as revenue from proceeding with operations increased $186.2 million, or 23%, to $1 billion from $822.3 million in the second quarter of 2012.

New vehicle same store sales increased 19% and used vehicle retail same store sales also increased by a similar number. Lithia surpassed the $1 billion quarterly revenue benchmark without precedent for its history and the organization also increased its full-year standpoint. The organization expects new vehicle same-store sales to increase 17% this year while used vehicle same store sales are relied upon to increase 16.5%.

At a trailing P/E of 20, Lithia is cheaper than Carmax which trades at a P/E of almost 26x. Moreover, Lithia's five-year PEG proportion is just 0.73, which means that the organization is required to develop at a not too bad pace.

America's Car-Mart

America's Car-Mart (NASDAQ:CRMT) is an alternate spot where you can go to purchase a used vehicle. The dealership is more inclined to used cars furthermore generates substantial profit through its financing arm. Furthermore, the organization trades at a P/E of just 13.6 thus it is truly shoddy when contrasted with alternate ones secured here.

In the as of late reported first quarter, America's Car-Mart saw a revenue increase of 11.4% to $123 million on the once more of a 5.6% rise in same-store sales. The organization also witnessed a rise of 9% in retail unit sales alongside a 2.6% increase in normal retail sales cost. Car-Mart has been aggressively extending its dealerships and as of late opened the 128th dealership in Meridian, Mississippi.

Administration plans to open several new dealerships going ahead and analysts also anticipate that the organization will develop earnings at a tolerable cut of 10% per annum for the following five years. The earnings development rate is in line with the sector's normal development rate and given the organization's low trailing P/E numerous, it would seem that a decent stock to hold in the long run.

Group 1 Automotive

An alternate alternative to consider is Group 1 Automotive (GPI). The organization is occupied with selling new and used cars, light trucks, and vehicle parts furthermore provides vehicle financing services, service and insurance contract services, and automotive upkeep and repair services.

The organization reported a record second quarter in July and saw its revenue bounce 23% from the earlier year period. The organization saw solid development in new vehicle sales which prompted a 27.3% increase in revenue from the segment while used vehicle retail revenue increased 17.2%. These are really solid development rates and that is the reason the stock looks like a decent proposition at a trailing P/E of 19x.

Group 1 has been on an acquisition spree and procured a dealership with estimated yearly revenue of around $80 million in the previous quarter. Looking ahead, analysts are expecting solid development in earnings at a CAGR of almost 18% for the following five years. The organization's PEG degree is an alluring 0.85 and the forward P/E is 13.5. These metrics point to the way that development is normal going ahead and investors should examine this organization as well.


So, while purchasing a used car will save you tons of cash, investing in companies occupied with selling used vehicles is an alternate approach to addition from this market. The above companies are great bets and investors should consider performing all the more due steadiness on the ones they like the most.

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