The auto industry is experiencing robust recovery and growth, overcoming the challenges posed by high inflation, supply chain challenges, and rising interest rates since last year. With improved inventories, incentives, and the increasing popularity of electric vehicles (EVs), the auto dealers and rentals industry is well-positioned for growth.
To that end, it could be wise to add fundamentally strong auto stocks Copart, Inc. (CPRT), Penske Automotive Group, Inc. (PAG), and Group 1 Automotive, Inc. (GPI).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the auto dealers and rentals industry is well-positioned for growth.
Auto dealers experienced a bumpy ride last year as high inflation, supply chain challenges, and higher borrowing rates impacted automobile sales. Sales of light vehicles last year reached their lowest level since 2012. Over 13.7 million to 13.9 million new vehicles were sold the previous year, representing a year-over-year decline of
According to Cox Automotive, new-vehicle sales for 2023 are forecasted to increase 3% year-over-year to 14.20 million units. As supply continues to ease, auto sales are likely to climb as incentives offered by automobile manufacturers averaged $1,914 in May, reaching its highest point in a year, increasing to 3.9% of the average transaction price.
Cox Automotive’s research manager of Economic and Industry Insights, Rebecca Rydzewski, said, “Incentives are up to nearly 4% in May, a sign that automakers are trying to move vehicles.”
Cox Automotive’s Chief Economist Jonathan Smoke said, “Auto sales are slow by historical standards, but the sales pace has been improving in early 2023, giving dealers reason to feel somewhat optimistic about the year ahead.”
Additionally, the car rental market is anticipated to experience growth driven by increased travel demand. The summer travel season is expected to boost the car rental industry.
The global car rental market is projected to reach $102.29 billion in 2023, growing at a CAGR of 8%.
Considering these factors, it could be wise to buy the featured stocks. Let's take a closer look at their fundamentals.
Copart, Inc. (CPRT)
CPRT offers online auctions and vehicle remarketing services. It utilizes advanced internet auction technology to facilitate the online sale of vehicles for a wide range of clients, including sellers, insurance companies, banks, charities, dealers, and individuals. The company provides various services such as online seller access, vehicle processing, transportation, inspection stations, etc.
In terms of the trailing-12-month EBITDA margin, CPRT’s 41.61% is 212.4% higher than the 13.32% industry average. Likewise, its 30.72% trailing-12-month net income margin is 384% higher than the 6.35% industry average. Furthermore, the stock’s 11.96% trailing-12-month Capex/Sales is 318.4% higher than the 2.86% industry average.
CPRT’s total service revenues and vehicle sales for the third quarter ended April 30, 2023, increased 8.7% year-over-year to $1.02 billion. Its non-GAAP net income increased 22.9% year-over-year to $346.06 million. Its operating income rose 12.4% year-over-year to $418.93 billion. The company’s non-GAAP EPS came in at $0.72, representing an increase of 24.1% year-over-year.
Street expects CPRT’s EPS and revenue for the quarter ending July 31, 2023, to increase 15.6% and 9% year-over-year to $0.65 and $962.78 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 69.8% to close the last trading session at $87.28.
CPRT’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 21 stocks in the B-rated Auto Dealers & Rentals industry. It has an A grade for Sentiment and Quality and a B for Stability. Click here to see CPRT’s ratings for Growth, Value, and Momentum.
Penske Automotive Group, Inc. (PAG)
PAG operates automotive and commercial truck dealerships globally. It has four segments: Retail Automotive, Retail Commercial Truck, Other, and Non-Automotive Investments. The company sells new and used vehicles, provides maintenance and repair services, offers finance and insurance products, and wholesales parts.
On June 5, 2023, PAG announced the acquisition of Transolutions Truck Centres, a retailer of medium and heavy-duty commercial trucks and buses in Winnipeg, Manitoba, Canada. This acquisition expands Premier Truck Group's operations in Canada and adds approximately $180 million in annualized revenue. Premier Truck Group now operates 44 locations across North America.
The TSTC acquisition is expected to add 73 service bays, 59 technicians, and approximately 200 new members to the Premier Truck Group team.
In terms of the trailing-12-month net income margin, PAG’s 4.65% is 8.8% higher than the 4.28% industry average. Likewise, its 8.28% trailing-12-month Return on Total Capital is 36.2% higher than the 6.08% industry average. Furthermore, the stock’s 2.01x trailing-12-month asset turnover ratio is 99.7% higher than the 1.01x industry average.
PAG’s total revenues for the first quarter ended March 31, 2023, increased 5.2% year-over-year to $7.34 billion. Its gross profit rose 1.7% year-over-year to $1.25 billion.
The company’s net income attributable to common stockholders came in at $298.30 million. Also, its income per share came in at $4.31. Additionally, the company’s non-GAAP EBITDA came in at $461.60 million.
For the quarter ending June 30, 2023, PAG’s revenue is expected to increase 2.6% year-over-year to $7.09 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 50% to close the last trading session at $153.72.
PAG’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Stability. It is ranked #7 out of 21 stocks in the same industry. To see PAG’s ratings for Growth, Momentum, Sentiment, and Quality, click here.
Group 1 Automotive, Inc. (GPI)
GPI operates in the automotive retail industry in the United States and the United Kingdom. The company sells new and used cars, light trucks, and vehicle parts, as well as service and insurance contracts; arranges related vehicle financing; and offers automotive maintenance and repair services. It has 206 dealerships in the U.S. and U.K.
On June 1, 2023, GPI announced the acquisition of Beck & Masten Kia. This expands the company's presence to 15 brands and 18 dealerships in the Houston market. The acquired dealership is expected to generate $85 million in annual revenues, contributing to GPI’s year-to-date total acquired revenues of $1.0 billion.
In terms of the trailing-12-month net income margin, GPI’s 4.28% is marginally higher than the 4.28% industry average. Likewise, its 2.55x asset turnover ratio is 153.2% higher than the 1.01x industry average. Additionally, the stock’s 32.19% trailing-12-month Return on Common Equity is 216.4% higher than the industry of 10.18%.
For the fiscal first quarter ended March 31, 2023, GPI’s total revenues increased 7.4% year-over-year to $4.13 billion. Its gross profit rose 0.4% over the prior-year quarter to $727.90 million. In addition, its non-GAAP net income and EPS came in at $155.80 million and $10.91, respectively.
For the quarter ending June 30, 2023, GPI’s revenue is expected to increase 2.6% year-over-year to $4.25 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 49.3% to close the last trading session at $237.59.
GPI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Quality. Within the Auto Dealers & Rentals industry, it is ranked #3. To see GPI’s rating for Growth, Momentum, Stability, and Sentiment, click here.
What To Do Next?
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CPRT shares were trading at $87.91 per share on Tuesday afternoon, up $0.63 (+0.72%). Year-to-date, CPRT has gained 44.38%, versus a 14.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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