Should Investors Buy These Automotive Retailer Stocks Now?
Automotive retailer stocks took investors on a great ride for the second half of 2020. If you were waiting for bigger dips in used car prices amid the coronavirus pandemic, chances are that you have already missed the boat. It is a good sign for many top automotive retailer stocks. It also suggests that the economy is recovering.
Sales declined during the first half of 2020, causing stock prices to plummet. Of course, you can’t compare automotive retailers with top electric vehicle stocks like Tesla (NASDAQ: TSLA) or Nio (NYSE: NIO), just to name a few notable ones. Many auto stocks were down due to the cyclical nature of the industry. But many have slowly recovered from their lows and have been hitting the gas since. While some analysts were expecting a further fall in the stock prices, it did not happen. There are a few reasons for that, though. One of the most obvious reasons is because many of the car retailers have moved their businesses online.
COVID-19 Led To Increasing Demand For Used Cars
Like many surprise success stories as a result of the pandemic, the period of uncertainty and existential crisis gave way to a boom in the automotive retailer market. With coronavirus showing no signs of abating anytime soon, traveling by personal car is still the safest way to move about.
Now, business activities are slowly returning to normalcy. As such, the need for personal vehicles is even more pronounced. On top of that, the economic slowdown also prompts consumers to opt for used cars instead of splurging their savings on new cars. As such, sales of used cars have held up better than new cars. For these reasons, investors have been looking for top automotive retail stocks to buy as the used-car industry gains traction.
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Top Automotive Retail Stocks To Watch Now
- CarMax (NYSE: KMX)
- Carvana (NYSE: CVNA)
- Kar Auction Services (NYSE: KAR)
First up, CarMax has been making efforts to transition itself and take a significant share in the online car retailing market. Consumers love CarMax and investors love KMX stock because the company offers the largest selection of cars. To many investors’ delight, the company revealed its latest growth numbers in December. The automotive retailer announced surprisingly strong sales, profit margins, and earnings in its last quarterly outing. But the company’s management warned about possibly turbulent times going forward. The recovery in demand for vehicles might be under threat by further COVID-19 outbreaks and potentially increasing unemployment. In addition, car manufacturers may be offering more discounts to entice consumers.
The company reported its most recent quarterly results in December 2020. In it, CarMax saw total used vehicle units sold increase 1% from a year ago. Net earnings for the quarter rose 35.9% from the prior year, a result of strong execution.
Commenting on the results, Bill Nash, president, and CEO said, “Despite the near-term market challenges due to the trajectory of the pandemic, our fundamentals remain robust and reflect the strength of our diversified business model spanning retail, wholesale, and auto finance. This strength, combined with our emerging omnichannel experience, is a unique advantage in the used car industry that firmly positions us to continue growing our market share while creating shareholder value over the long-term.” With positive developments surrounding the company, would you be adding KMX stock to your watchlist?
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Next up, Carvana is also known as the Amazon of automotive retailers. The pioneer in online car retailing is one of the best stocks to buy now according to analysts. The company is most famous for its car towers, or ‘car vending machines’ as some would like to call them. Carvana has been gaining strong momentum as possibly one of the best auto stocks to buy now. And that’s thanks to its unique position as the largest online used car retailer in the U.S.
Carvana has proven its business model to be viable and even superior to its traditional brick-and-mortar model. Judging from its latest quarterly report, its earnings mark a significant milestone not just for Carvana, but the whole automotive industry in general. It caught many investors off guard when it recorded positive EBITDA for the first time, with 40% sales growth.
So, the industry appears to be growing like what the report shows. The question here is, why are some people out there shorting CVNA stock? Perhaps, there are some out there who don’t believe that retailers could do well in a pandemic. Perhaps they do not believe that the company can achieve profitability anytime soon. But they might be forgetting about the huge market that the company could serve. The global used car market is worth over $1 trillion. Only a tiny percentage of that is online. Now, with more businesses moving online due to the pandemic, automotive retailing is no exception. Carvana’s fluid user experience and quick service could mean that the company will continue to gain market share in this fragmented industry. With that in mind, is CVNA stock the best auto retailer stock to buy now?
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Kar Auction Services
Kar Auction Services may not be exactly a car retailer, but its effort of turning the company into an online car auction house is getting a lot of attention on Wall Street. The Indiana auction-based house has compressed the three-year process into what many would think its an overnight success, thanks to the coronavirus pandemic. But this isn’t just about selling classic cars, it’s about something bigger.
“We planned on going 100% digital over the course the next two or three years,” KAR Auction Services CEO Jim Hallett said in an interview with CNBC’s Jim Cramer. “We basically got that taken care of in the space of about two or three weeks and, quite frankly, it has exceeded our expectations.”
In times like this when the markets are transitioning, auction services are in high demand. Therefore, it’s a way for the company to expand quickly through digitization amid the coronavirus pandemic. By having auctions online, buyers are able to access a wider selection than what they can get in their local market. Likewise, sellers can market their vehicles to a larger buyer base. Since the start of 2021, KAR stock has climbed 11.5%, closing Tuesday’s session at $20.75, just below its pre-pandemic price levels. Considering the company’s future prospects, will KAR stock be a good growth stock to watch in 2021?