Given the current market volatility and declining U.S. car sales amid an economic downturn, it may not make sense to bet on auto dealership stocks that could dive due to their fundamental weakness or industry headwinds. CarMax (KMX), Asbury Automotive (ABG) and Sonic Automotive (SAH) have weak finances and growth prospects. So these stocks are best avoided now.
According to RBC Capital Markets, the seasonally adjusted annual rate (SAAR) for U.S. light vehicle sales in May came in at 12.80 million vehicles, 4.5% below its forecast and down 12. 3% from April due to low inventories amid continued shortages of semiconductors and record vehicle prices.
Intensifying supply chain disruptions and rising energy and commodity prices due to the Russian-Ukrainian war further affected sales. Moreover, with further aggressive monetary policy tightening from the Fed increasing the likelihood of a recession, analysts warn a slowdown in car sales.
In this context, it does not make sense to invest in the shares of car dealerships CarMax, Inc. (KMX), Asbury Automotive Group, Inc. (GBS) and Sonic Automotive, Inc. (SAH) because they do not have sufficient fundamental solidity and growth prospects.
CarMax, Inc. (KMX)
KMX operates as a used vehicle retailer. The Company operates through two segments, CarMax Sales Operations and CarMax Auto Finance. It offers its customers a range of makes and models of used vehicles, including domestic, imported and luxury vehicles.
KMX’s net revenue increased 48.8% year-over-year to $7.69 billion for the fourth fiscal quarter ended February 28, 2022. However, its net income decreased by 23.9% year over year to $159.80 million. In comparison, his PES for the quarter was $0.98, down 22.8% year over year.
Analysts expect KMX’s revenue to grow 4.5% year-over-year to $33.33 billion in fiscal 2023. Last six months to close trading trading yesterday at $102.24.
KMX’s weak prospects are evident in its POWR Rankings. The stock has an overall rating of D, which is equivalent to a sell in our proprietary rating system. POWR ratings rate stocks on 118 different factors, each with its own weighting.
It has a D grade for quality, growth and sentiment. Click here to see additional POWR ratings for KMX (momentum, value and stability). It is ranked #24 out of 25 stocks in the Car dealerships and rentals industry.
Asbury Automotive Group, Inc. (GBS)
ABG operates as an automotive retailer. It offers a range of automotive products and services, vehicle repair and maintenance services, replacement parts and collision repair services. The company owns and operates 205 new vehicle franchises representing 31 automobile brands in 155 dealerships; and 35 collision centers in the United States.
ABG’s net revenue increased 78% year-over-year to $3.91 billion for the fiscal first quarter ended March 31, 2022. However, its selling, general and administrative expenses increased 90% year over year to $455.50 million. Additionally, total current assets were $1.81 billion for the period ended March 31, 2022, compared to $1.93 billion for the period ended December 31, 2021.
For fiscal 2023, analysts expect ABG’s revenue to grow 6.9% year-over-year to $17.06 billion. However, its EPS is expected to fall 7.6% year-over-year to $32.36 in fiscal 2023. The stock has lost 2.7% in the past month to close the session. trading yesterday at $186.43.
ABG’s weak fundamentals are reflected in its POWR ratings. It has a D rating for feeling and stability. Click here to see ABG’s growth, value, momentum and quality ratings. Additionally, ABG is ranked #14 in the same industry.
Sonic Automotive, Inc. (SAH)
Automotive retailer SAH operates in two segments, franchise dealerships and EchoPark. The company operates 140 new vehicle franchises representing 28 car and light truck brands, 17 collision repair centers in 17 states and 46 EchoPark stores in 16 states, including 11 Northwest Motorsport used vehicle stores.
SAH’s net revenue increased 28.7% year-over-year to $3.59 billion for the fiscal first quarter ended March 31, 2022. However, its selling, general and administrative expenses increased 33.7% year over year to $387 million. Additionally, its EchoPark segment’s loss was $34.90 million, compared to a profit of $2 million the previous year.
Analysts expect SAH’s revenue to grow 9.2% year-over-year to $17.58 billion in fiscal 2023. However, the company’s EPS is expected decline 9.1% year-over-year to $9.31 in fiscal 2023. The stock lost 12.8% in fiscal 2023. last three months to close yesterday’s trading session at $44.53.
SAH’s POWR ratings are consistent with this bleak outlook. Additionally, the stock has a D rating for Sentiment. Click here to see SAH’s ratings for Quality, Momentum, Value, Growth and Stability. Additionally, SAH is ranked #11 in the Auto Dealership and Rental Industry.
KMX shares were flat in premarket trading on Friday. Year-to-date, the KMX is down -23.27%, compared to a -15.22% rise in the benchmark S&P 500 over the same period.
About the Author: Nimesh Jaiswal
At Nimesh Jaiswal a fervent 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 the price of a stock is the key approach he follows while advising investors in his articles.
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