AutoNation Thursday's IBD Stock Of The Day, has logged strong earnings growth throughout the Covid-19 pandemic. Chip shortages and supply chain constraints continued forcing new and used car prices to record high. That has helped make AutoNation stock resilient vs. the stock market's current correction.
Shares are fighting to retake support at the stock's converged 10- and 40-week moving averages, as they climb the right side of an eight-month-long base.
Fort Lauderdale-based AutoNation owns and operates 258 new and used vehicle dealerships in the U.S. The company recorded $25.8 billion in revenue for the 2021 fiscal year, up $5.5 billion from the previous year.
Steering Into The Skid
The company has recorded positive annual earnings growth since 2017, increasing to $18.14 from $3.93 over the past five years. In 2020, the prices of new and used cars skyrocketed as producers struggled with semiconductor chip shortages and supply chain bottlenecks. In the past year alone, used car prices spiked 45% and prices for new cars increased 12.2%, according to Labor Department data.
That has been beneficial for AutoNation, which saw its revenue from used car sales jump to $2.57 billion for Q1 2022, up 47% year over year. The company has also recorded more than 100% EPS growth in every quarter since March 2021.
With the high prices of used cars expected to persist, AutoNation is steering into the skid. The company is targeting a goal of 130 used vehicle stores by the end of 2026, a major increase from the 11 they have now. AN anticipates investing $10 million to $12 million per store, according to its first-quarter earnings report.
AutoNation Stock: IBD Insights
Trading volume was quiet today following news of a 75-basis point rate hike from the Fed. Still, AutoNation shares reversed 1.5% lower, cutting back below the chart's 50-day and 200-day moving averages, to close at 113.40. The stock sits about 18% below a $133.58 buy point within a saucer base.
A correcting stock market is a high-risk time for new buys. Aggressive investors feeling impatient could try to jump into AutoNation stock if it clears recent highs around 126. But waiting for the standard buy point — and for the market status to shift to "confirmed uptrend" — is the less risky move.
In the meantime, AutoNation stock is a strong watchlist candidate. Its Relative Strength Rating of 91 is a new high, indicating strong performance against its peers in the IBD database.
AN stock also has a near-perfect IBD Composite Rating of 96, which combines key fundamental and technical metrics to easily analyze stocks. AutoNation's Comp score is the third-highest in its group, which is led by Group I Automotive.
AutoNation has an EPS Rating of 98 out of a possible 99, indicating strong earnings growth. It's reported average 82% EPS growth over the past three years, and its EPS is projected to increase 29% this year.
AutoNation stock currently has a consensus buy rating with a price target of 156.88, according to analysts polled by FactSet.
