Buying a car is brutal (don't take it from me, check out the WSJ story), but this stock tip will help you out!

 

WSJ story July 16

There was a WSJ story today that highlighted how difficult it is to buy a new or used car with sales prices often exceeding sticker prices. This is consistent with other big purchase items such as housing, furniture, etc...Chip shortages, low inventories, and consumers flush with cash are 3 of the key reasons for the sharp price rises in the car market.

This leads me to the following stock price recommendation. There are two names that come to mind: Carvana (CVNA)  and CarMax (CMX). Carvana is going gangbusters, with sales almost doubling YoY and up 10x over the past 4 years. However at $50+ bil market cap, it is currently over 5x Price to Sales. I am a sucker for a growth company, and this one certainly fits the bill, however with the stock up from $30 in the depths of the Covid selloff in March 2020 to over $300 today, that is a bit rich.

Therefore let's take a look at the leader in the in industry, CarMax. They are currently trading below 1x sales and with a PE below 20. This seems pretty cheap given the growth rate. They are transitioning rapidly from an old school physical stores, to a larger digital offering.  Here are the historical numbers:

Attacking a $1 trillion fragmented industry may not be very easy. But when you are the number 1 player and are expected to stay there for at least the next little while (maybe Carvana will overtake them eventually) but that is still a big IF. CarMax is still expected to grow its unit sales by 15-20% over the next few years which should power both it's topline and bottom line growth for years to come.


Technically, we still need to wait for a solid break over $137, however we are close to there and if the stock falls anywhere near the $120 range it would be a wonderful place to start picking some up!

Happy investing...

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