The auto industry is fueled by rising demand for rental and electric cars. Given the industry’s steady growth prospects, investors could keep watching trending auto stocks Penske Automotive Group, Inc. (PAG), Group 1 Automotive, Inc. (GPI), and Cars.com Inc. (CARS).
Inflation has pained consumers for quite some time and is slowly losing its grip over the U.S. economy. Used car prices are coming down. For August, consumer prices for new vehicles were up 0.3% compared to July, while used car prices were down 1.2%.
Additionally, the passenger car rental market is growing as people try to avoid the high cost of maintaining vehicles, resulting in increasing demand for renting cars. The global passenger car rental market is expected to grow to $173.19 billion in 2023 at a CAGR of 5.4%.
Moreover, the automotive market is expected to keep growing in the coming years because of the rising demand for personal and commercial vehicles, the rise of new technologies like electric and self-driving cars, and the growing awareness of safety and environmental issues among consumers.
The global automotive market is expected to grow to $28.70 billion by 2030 at a CAGR of 4.5%.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Auto Dealers & Rentals stocks, beginning with the third choice.
Stock #3: Penske Automotive Group, Inc. (PAG)
PAG is a diversified transportation services company that operates automotive and commercial truck dealerships in the United States and internationally. The company operates through four segments: Retail Automotive; Retail Commercial Truck, Other; and Non-Automotive Investments.
On August 11, 2023, PAG announced that it had acquired BMW of Wilmington and Porsche Wilmington. Both dealerships have earned their respective brand’s highest honor, with BMW of Wilmington designated as a BMW Center of Excellence and a Porsche Wilmington designated as a Porsche Premier Dealer.
On June 5, PAG announced that it had acquired Transolutions Truck Centres (TSTC), a retailer of medium and heavy-duty commercial trucks and buses located in Winnipeg, Manitoba, Canada. With this acquisition, Premier Truck Group, the company’s wholly-owned commercial truck subsidiary, continues to expand and complement its operations in Canada by establishing a presence in an additional Canadian province.
With a four-year average dividend yield of 2.07%, PAG pays an annual dividend of $2.88, which translates to a dividend yield of 1.78% on the current price level.
PAG’s trailing-12-month ROTA of 8.36% is 114.9% higher than the industry average of 3.89%. Its trailing-12-month asset turnover ratio of 2.03x is 103.6% higher than the industry average of 1x.
PAG’s revenue increased 8.1% year-over-year to $7.45 billion in the fiscal second quarter that ended June 30, 2023. Gross profit increased 2.9% year-over-year to $1.27 billion, and net income came in at $302.60 million. Also, its income per share came in at $4.41.
PAG’s revenue for the fiscal third quarter ending September 2023 is expected to grow 3.6% year-over-year to $7.17 billion. Its EPS is expected to be $4.02 for the same quarter. Also, it has surpassed its EPS and revenue estimates in each of the trailing four quarters, which is impressive.
PAG’s shares have gained 59.1% over the past year to close the last trading session at $167.94.
PAG’s POWR Ratings reflect its promising outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value and Stability. Within the Auto Dealers & Rentals industry, it is ranked #8 out of 22 stocks.
Beyond what is stated above, we’ve also rated PAG for Momentum, Growth, Quality, and Sentiment. Get all PAG ratings here.
Stock #2: Group 1 Automotive, Inc. (GPI)
GPI operates in the automotive retail sector in the United States and the United Kingdom. The company sells new and used vehicles, parts, and insurance contracts while providing financing and automotive maintenance services.
On August 2, 2023, GPI declared a quarterly dividend of $0.45, payable on September 15, 2023. With a four-year average dividend yield of 0.84%, GPI pays an annual dividend of $1.80, which translates to a dividend yield of 0.68% on the current price level.
Earlier in June, GPI announced the acquisition of Beck & Masten Kia, a dealership in the Houston metropolitan area. This is expected to expand the company’s footprint to 15 brands and 18 dealerships in the Houston market. The dealership is expected to generate $85 million in annual revenues, bringing year-to-date total acquired revenues for GPI to $1 billion.
GPI’s trailing-12-month ROTA of 9.18% is 135.9% higher than the industry average of 3.89%. Its trailing-12-month asset turnover ratio of 2.50x is 150.8% higher than the industry average of 1x.
For the fiscal second quarter that ended June 30, 2023, GPI’s total revenues increased 10% year-over-year to $4.56 billion, while its gross profit increased marginally year-over-year to $775.50 million. Its income from operations stood at $270.80 million. Also, its earnings per share came in at $12.04, representing an increment of 1.2% year-over-year.
Street expects GPI’s revenue to increase 6% year-over-year in the current quarter (ending September 2023) to $4.41 billion. Its EPS is expected to be $11.27 for the same quarter. Also, it has surpassed its EPS and revenue estimates in each of the trailing four quarters.
GPI’s shares have gained 72.5% over the past year, closing the last trading session at $275.50.
It’s no surprise that GPI has an overall rating of B, which equates to Buy in our proprietary rating system.
GPI also has an A grade for Value. It is ranked #5 in the same industry.
In addition to the POWR Ratings highlighted above, one can access GPI’s ratings for Momentum, Growth, Quality, Stability, and Sentiment here.
Stock #1: Cars.com Inc. (CARS)
CARS operates as a digital marketplace and provides solutions for the automotive industry. Its platform connects car shoppers with sellers.
CARS’s trailing-12-month ROTC of 10.12% is 49% higher than the industry average of 6.79%, while its trailing-12-month ROTA of 7.02% is 30% higher than the industry average of 5.05%.
In the fiscal second quarter ended June 30, 2023, CARS’s total revenue increased 3.3% year-over-year to $168.18 million. The company’s net income increased significantly year-over-year to $94.13 million. Also, its EPS increased significantly year-over-year to $1.37.
Analysts expect CARS’s revenue to increase 2.3% year-over-year to $3.63 billion for the fiscal third quarter ending September 2023. Its EPS is expected to be $14.79 for the same quarter. Also, the company topped the consensus EPS estimates in each of the four trailing quarters.
Over the past year, the stock has gained 64.1% to close the last trading session at $18.58.
CARS’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value and Sentiment. It is ranked #2 in the same industry.
Click here to access the additional CARS ratings (Momentum, Growth, Stability, and Quality).
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PAG shares were trading at $164.75 per share on Friday morning, down $3.19 (-1.90%). Year-to-date, PAG has gained 45.29%, versus a 17.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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