AutoNation is Friday's IBD Stock Of The Day. AN stock is working on a buy point after the Fort Lauderdale-based auto-dealership giant reported mixed second-quarter results Thursday.
AutoNation earnings rose 34% vs. a year earlier, ending a five-quarter streak of triple-digit growth but topping views. Sales dipped 2% to $6.87 billion, slightly missing.
AutoNation, which sits on the IBD 50, has more than 300 locations across the country. It sells new and used vehicles along with an auto parts and services business segment.
AutoNation along with Group 1 Automotive and Penske, have capitalized on car shortages, delivering strong profits through the first part of 2022. Auto retail stocks have also been delivering aggressive growth on the back of favorable industry dynamics, with demand for vehicles still far ahead of supply as pandemic disruptions drag on.
AN announced Thursday it is planning to expand its used car business. While AN reported that new vehicle revenue declined 14% in the second quarter, used vehicle revenue increased 13%. The company is now set to open its twelfth AutoNation USA store, which is focused primarily on buying and selling used vehicles. The company has a target of more than 130 AutoNation USA stores in operation by the end of 2026.
"AutoNation Associates delivered outstanding performance across all of our business sectors, leveraging our customer focus, digital capabilities, cost discipline, and capital allocation to produce record results," CEO Mike Manley said in a news release Thursday.
AutoNation Stock
Shares rose 1.25% to 117.07 in Friday's stock market trading, off session highs but moving back above its 50-day and 10-week lines. The AN stock daily chart shows lots of big moves, its weekly view is much more orderly. AutoNation stock is in a base going back nine months with an official buy point of 133.58, according to MarketSmith analysis.
However, a trendline offers an early entry. Investors could use 125.09, just above the July 19 high, as the trigger point. That nearly coincides with resistance around 126, another possible entry.
Despite strong earnings growth, auto retail stocks lagged the general market in much of early 2021 and early 2022. The industry started to improve in April, holding relatively flat while the S&P 500 fell almost 20% from April 1 to mid-June.
AutoNation stock has been consolidating since October. While it did advance in April, briefly moving above the 10-week moving average, it has been unable to hold support. The stock has struggled around its converged 10-week and 40-week lines.
AutoNation and other auto dealers face a lot of uncertainty. A weakening economy could weigh on demand and boost auto loan delinquencies and defaults. Meanwhile, new-car production may finally start to pick up as chip shortages ease. That combination may weigh on auto pricing, which has been very strong for the past two years.
AutoNation currently ranks sixth in the retail/wholesale-automobile industry group. AN stock has a best-possible Composite Rating of 92. It has a 91 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share price movement with a 1 to 99 score. The rating shows how a stock's performance over the last 52 weeks holds up against all the other stocks in IBD's database. The EPS rating is 96.
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