While Wall Street has great expectations for Carvana, an alternative choice for investors could be Group 1 Automotive, as it may prove to be more promising within the auto retail sector.
The stock price of online automobile seller Carvana surged approximately 5% on Tuesday. following a news report That cited CEO Ernie Garcia suggesting that tariffs might increase used car sales. Wall Street analysts share this optimism; they anticipate the company’s operating profits will more than double by 2025 and then rise an additional 25% the same year.
However, Carvana’s elevated stock price already encapsulates this optimistic outlook. The shares are presently trading at approximately 58 times the projected earnings for 2025. This valuation demands numerous positive factors amid an atmosphere that remains fraught with uncertainty—on Monday, President Donald Trump stated he would reduce the tariff rate on goods coming from China for a period of three months to provide time for discussions.
If investors want to invest in auto dealerships, they may find a more promising opportunity with another firm that has received recent positive developments and comes at a lower cost. On Tuesday, shares of Group 1 Automotive surged by over 1.2%, surpassing the $448 mark, following an upgrade by Citigroup Research analyst Michael Ward. He increased his target price for the stock from $463 to $495.
Headquartered in Houston, Group 1 Automotive operates over 330 automobile dealerships across the U.S. and U.K., expanding its portfolio consistently via strategic acquisitions. Financial analysts anticipate moderate profitability increases of about 3.8% for 2025 and around 6.6% for 2026. However, the company’s stock trades below an elevenfold multiple based on projected 2025 earnings.
According to research firm CFRA, approximately half of Group 1’s income is derived from new car sales, whereas only about one-third comes from used vehicle sales. The remaining portion stems from various services such as parts and financing. Should President Trump’s tariffs prompt consumers to opt for pre-owned cars over brand-new ones, this shift could adversely affect Group 1’s primary source of revenue.
Nevertheless, as Ward from Citi highlights, approximately 25% of Group 1’s income originates from their activities in the U.K., where the proposals put forth by the Trump administration will have no impact.
Ward believes that Group 1’s price-to-earnings ratio might increase as investors start forgetting about the disruptions experienced by the industry during the Covid era.
“He noted that dealer inventories are currently assessed at a 15% discount compared to their values before the pandemic, even though they performed better financially than anticipated throughout and following the crises,” she stated. “With profit margins increasing and consolidation speeding up, this presents an opportunity for GPI to achieve over 10% revenue growth between 2025 and 2026.”
Send your letter to Ian Salisbury. ian.salisbury@barrons.com
Posting Komentar
Posting Komentar