Despite persistent inflation and high-interest rates, auto sales have been improving, thanks to strong consumer demand and a higher supply of new vehicles. Therefore, investors could look to buy fundamentally strong auto stocks Group 1 Automotive, Inc. (GPI), Rush Enterprises, Inc. (RUSHA), and Cars.com Inc. (CARS).
According to a joint forecast from J.D. Power and LMC Automotive, total new-vehicle sales for May 2023 are projected to reach 1,337,700 units, a 15.6% increase from May 2022.
The increased vehicle availability driven by the rising number of automotive dealers and pent-up demand from consumers who have delayed purchases due to low inventory is fuelling sales, particularly on the online market. The global online car-buying market is expected to reach $722 billion by 2030, growing at a CAGR of 12.2%.
In addition, the global automotive market is expected to reach $28.7 billion by 2030, at a CAGR of 4.5%, boosted by rising demand for personal and commercial vehicles and technological advancement.
Given these factors, picking up the featured stocks could benefit investors. Let’s have a closer look at their fundamentals.
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, service and insurance contracts, arranges related vehicle financing, and offers automotive maintenance and repair services.
On June 1, 2023, GPI announced the acquisition of Beck & Masten Kia. The dealership is expected to generate $85 million in annual revenues, bringing year-to-date total acquired revenues for GPI to $1.0 billion.
GPI’s President and CEO, Daryl Kenningham, said, “Kia is a new brand for our Houston platform. Kia America experienced the best first quarter sales performance in the company’s history, and Houston is the 2nd fastest growing major metropolitan area in the U.S. This combination represents a terrific opportunity for Group 1.”
In terms of the trailing-12-month Return on Common Equity, GPI’s 32.19% is 216.4% higher than the 10.18% industry average. Likewise, its 10.21% trailing-12-month Return on Total Assets is 180.4% higher than the industry average of 3.64%. Furthermore, the stock’s 2.55x trailing-12-month asset turnover ratio is 153.2% higher than the industry average of 1.01x.
GPI’s total revenues for the fiscal first quarter ended March 31, 2023, increased 7.4% year-over-year to $4.13 billion. The company’s gross profit increased marginally year-over-year to $727.90 million. Additionally, its non-GAAP income from operations came in at $242.10 million, while its non-GAAP EPS came in at $10.91.
GPI’s revenue for the quarter ending June 30, 2023, is expected to increase 2.6% year-over-year to $4.25 billion. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 45.8% to close the last trading session at $246.01.
GPI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 21 stocks in the B-rated Auto Dealers & Rentals industry. In addition, it has an A grade for Value and a B for Quality.
Click here to see the additional ratings of GPI for Growth, Momentum, Stability, and Sentiment.
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.
In terms of the trailing-12-month Return on Common Equity, RUSHA’s 23.21% is 66.5% higher than the 13.94% industry average. Its 9.81% trailing-12-month Return on Total Assets is 93.5% higher than the 5.07% industry average. Likewise, its 2.04x trailing-12-month asset turnover ratio is 156% higher than the industry average of 0.80x.
RUSHA’s total revenue for the first quarter that ended March 31, 2023, increased 22.3% year- over-year to $1.91 billion. Its gross profit increased 15.4% year-over-year to $398.77 million.
Additionally, it’s adjusted EBITDA increased 30.7% year-over-year to $560.39 million, while its net EPS attributable to RUSHA came in at $1.60, representing no difference over the prior-year quarter.
RUSHA’s revenue for the quarter ending June 30, 2023, is expected to increase 8% year-over-year to $1.93 billion. It has a creditable earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 24.1% to close the last trading session at $58.89.
RUSHA’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #5 in the same industry. It has a B grade for Value and Sentiment.
In total, we rate RUSHA on eight different levels. Beyond what we stated above, we have also given RUSHA grades for Growth, Momentum, Stability, and Quality. Click here to access all the ratings.
Cars.com Inc. (CARS)
CARS operates as a digital marketplace and provides solutions for the automotive industry. Its platform connects car shoppers with sellers.
The company showcases dealer inventory, elevates and amplifies dealers’ and automotive manufacturers’ brands, connects sellers with the ready-to-buy audience, and empowers shoppers with the resources and information needed to make car-buying decisions.
In terms of the trailing-12-month gross profit margin, CARS’s 68.49% is 38.1% higher than the 49.59% industry average. Its 16.58% trailing-12-month levered FCF margin is 125.2% higher than the 7.36% industry average. Likewise, its 6.23% trailing-12-month Return on Common Equity is 89.7% higher than the industry average of 3.29%.
For the fiscal first quarter that ended March 31, 2023, CARS’ total revenue increased 5.6% year-over-year to $167.07 million. The company’s net income increased 164.5% year-over-year to $11.48 million. Its adjusted EBITDA increased 5.5% year-over-year to $44.34 million. Also, its EPS came in at $0.17, representing a 183.3% increase over the prior-year quarter.
Analysts expect CARS’ EPS and revenue for the quarter ended June 30, 2023, to increase 20.4% and 3.6% year-over-year to $0.49 and $168.67 million, respectively. Over the past year, the stock has gained 85.3% to close the last trading session at $19.21.
CARS’ strong outlook reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #2 in the Auto Dealers & Rentals industry. It has an A grade for Growth and a B for Value, Sentiment, and Quality.
We have also given CARS grades for Momentum and Stability. Get all CARS ratings here.
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GPI shares were unchanged in premarket trading Thursday. Year-to-date, GPI has gained 36.93%, versus a 12.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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