What Car Dealership Stock is a Better Buy?
As the resurgence of COVID-19 cases is once again benefiting auto sales, as people buy cars to avoid public transportation, the auto dealership industry is well positioned to witness the growth in sales. And we believe AutoNation (AN) and Vroom (VRM) should benefit. But which of these two titles is the best buy now? Read on to find out.
AutoNation, Inc. (A) in Fort Lauderdale, Florida, operates as an automotive retailer in the United States through its subsidiaries. The company operates through three segments: domestic, import and high-end luxury. In comparison, Vroom, Inc. (VRM) in New York operates an e-commerce platform to buy and sell new and used cars. It also offers financing solutions.
As governments around the world reinstate lockdown and social distancing measures to limit the spread of the highly transmissible omicron variant of COVID-19, people are starting to turn away from public transport again. Therefore, demand for new and used cars is expected to increase despite high prices due to the impact of the global semiconductor shortage on production. This should boost auto dealer sales. Additionally, as semiconductor chip shipments improve and factories return to full working capacity, strong demand for electric cars due to rising oil prices and concerns about climate change is expected. stimulate industry growth. Therefore, we believe that AN and VRM should benefit from it.
Over the past three months, AN has gained 15.4% in price against negative VRM returns. Additionally, the year-to-date gains of 72.9% AN compare to negative returns from VRM. AN is also the big winner with gains of 81.4% over VRM’s negative performance returns last year.
But which of these two titles is the best buy now? Let’s find out.
On November 16, 2021, AN announced the opening of AutoNation USA Phoenix Avondale, its second used vehicle store in the Phoenix Market, and the fourth new AutoNation USA store to open in 2021. Steve Kwak, President of AN USA, said, âStrong consumer demand for used vehicles creates an ideal environment for AutoNation USA to showcase our customer-centric experience and our coast-to-coast store network, which offer customers a choice when purchasing vehicles â,
A law firm is investigate potential claims against VRM on behalf of its long-term shareholders on concerns about whether its board of directors has breached its fiduciary duties. It is alleged that VRM had failed to demonstrate that it could control and adapt the growth of its sales force to meet the demand for its products.
Recent financial results
AN’s revenue increased 18% year-on-year to $ 6.38 billion for its fiscal third quarter, ended September 30, 2021. The company’s adjusted operating profit increased 63% year on year to reach $ 503.30 million, while its adjusted net income from continuing operations was $ 361.70 million, representing a 71% year-over-year increase. In addition, its adjusted EPS from continuing operations was $ 5.12, up 115% year-over-year.
VRM’s revenue increased 177.6% year-on-year to $ 896.76 million for its fiscal third quarter, ended September 30, 2021. However, its adjusted operating loss increased 145.7% in YoY to $ 90.59 million, while its adjusted net loss came to $ 94.71 million, representing a 150.2% year-over-year increase. In addition, his adjusted loss per share was $ 0.70, up 141.4% year-over-year.
Expected financial performance
Analysts expect AN’s revenue to grow 28.8% for the quarter ending March 31, 2021 and 26.4% in fiscal 2021. The company’s EPS is expected to increase by 102.1% for the quarter ending December 31, 2021 and 65.9% for the quarter ending March. December 31, 2021. And its EPS is expected to grow 24.4% per year over the next five years.
In comparison, VRM’s revenue is expected to increase 95.9% for the quarter ending March 31, 2021 and 131.8% in its fiscal 2021. However, its EPS is expected to decline 75% for the year. quarter ending December 31, 2021 and 14% for the quarter ending March 31, 2021. In addition, VRM’s EPS is expected to decline by 16% per year over the next five years.
The turnover of the last 12 months of AN is 9.42 times that generated by VRM. AN is also more profitable, with EBITDA and net income margins of 7.44% and 4.54%, respectively, compared to the negative returns of VRM.
Additionally, AN’s ROE, ROA, and ROTC are 39.82%, 11.80% and 14.31%, respectively, compared to negative VRM values.
In terms of 12-month rolling P / S, VRM is currently trading at 0.62x, which is 63.2% higher than AN’s 0.38x. In addition, the VRM before 0.53x EV / S The ratio is 10.4% higher than that of the 0.48x NA.
So, AN is relatively affordable here.
AN has an overall A rating, which equates to a strong buy in our property POWR odds system. In contrast, VRM has an overall F rating, which results in a strong sale. POWR scores are calculated taking into account 118 separate factors, each factor being weighted to an optimal degree.
AN has a B rating for growth, which is in line with analysts’ expectations that its EPS will increase in the coming months. On the other hand, VRM has a D rating for growth, which is in line with analysts’ expectations that its EPS will decline in the near term.
Additionally, AN has a B grade for quality. This is justified given AN’s rolling 12-month ROTA of 13.97%, which is 134.2% above the industry average of 5.96%. In comparison, VRM has a D quality rating, which is in sync with its negative 12-month ROTA, compared to the industry average of 5.96%.
With the growing demand for vehicles amid the resurgence of COVID-19 cases, the auto dealership industry is expected to grow significantly in the near term. While both AN and VRM are expected to win, we believe it is best to bet on AN due to its strong financial position, lower valuation, higher profitability and better growth prospects.
Our research shows that the chances of success increase when investing in stocks with an overall strong buy or buy rating. See all the other top rated stocks in the Car Dealers & Rentals sector here. As well, Click here to access all of the industry’s top rated specialty retailers inventory.
AN stock was trading at $ 114.59 per share on Tuesday morning, up $ 0.31 (+ 0.27%). Year-to-date, AN has gained 64.19%, compared to a 25.60% increase in the benchmark S&P 500 over the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s a passionate interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach he takes while advising investors in his articles.
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