$ABG Stock: Learn why their growth plan can propel the stock to new highs

Investment Information:

  • The formatting of this section was awful (imported the story from my original post, which will have this sections information included)
  1. Same Store Growth: Asbury desires to grow same store revenues and profits by investing in training, driving retention, increasing productivity, and putting a focus on growth in their Financial and Insurance (F&I) segment as it has high margins and can contribute to high growth.
  2. Clicklane: Asbury plans to drive growth in Clicklane (Online New/Used Car Dealership) through increased traffic and conversion, growing their margins, and creating a more seamless/user friendly experience.
  3. Acquisitions: In 2021, Asbury grew their annual revenues by $6.6B through their acquisitions (beating their target of $5B). Asbury plans to continue acquiring automotive companies across the USA to grow in current markets, expand into new markets, and maintain long-term growth.
  • $AN — AutoNation:AutoNation, Inc. is an automotive retailer in the USA that operates in three segments: Domestic, Import, and Premium Luxury. AutoNation offers a range of new and used vehicles; parts & services, repair & maintenance, and wholesale parts/services. The company also provides automotive finance and insurance products (similarly to Asbury). AutoNation owns and operates 315 new vehicle franchises, 74 AutoNation-branded collision centers, 5 AutoNation USA used vehicle stores, 4 AutoNation-branded automotive auction operations, and 3 parts distribution centers.
  • $GPI — Group 1 Automotive:Group 1 Automotive operates in the automotive retail industry, selling new and used cars, light trucks, and vehicle parts, as well as service and insurance products. Group 1 operates in 15 US states; 33 towns in the United Kingdom; and 3 states in Brazil. Group 1 owns and operates 190 automotive dealerships, 247 franchises, and 48 collision centers that offer 33 brands of automobiles.
  • $LAD — Lithia Motors Inc.:Lithia Motors is an American automotive retailer that operates through three segments: Domestic, Import, and Luxury. It offers new and used vehicles; vehicle financing services; insurance contracts; automotive repair & maintenance services, as well as vehicle bodies and parts. Lithia operates 210 stores and offers their products online through 200 websites.
  • $PAG — Penske Auto Group: Penske Auto Group is a diversified transportation services company. The company operates through four segments: Retail Automotive, Retail Commercial Truck, Other, and Non-Automotive Investments. It operates dealerships, engaging in the sale of new and used motor vehicles, collision repair services, finance and insurance products, aftermarket products, and wholesale of parts. It also operates a heavy and medium duty truck dealership, which offers a range of used trucks, and maintenance/repair services. Penske operates 304 retail automotive franchises, including 142 American franchises,162 International Franchises, 17 used vehicle supercenters (US/UK); and 25 commercial truck dealerships (US/CAN).
  • Yearly Financial Performance (Good): In 2020, Asbury was able to increase their used vehicle revenues by 2%, increase their gross profits by 5%, increase their operating profit by 14%, their income (pre-tax) by 39%, their net income by 38%, and their EPS by 38%. All of these metrics are very important metrics when valuing a company based on their financials, and results in the conclusion that 2020’s financial performance was great.
  • Yearly Financial Performance (Bad): In 2020, Asbury’s revenues from new vehicles decreased by 2%, parts and services decreased by 1%, finance and insurance decreased 3%. These factors led to an overall decrease in Asbury’s revenues by 1%. Overall, there was not a lot of bad things to say about their 2020 financial performance.
  • Q3 2021 Financial Performance (Good): In Q3 2021, Asbury was able to grow their revenues by 30% (from Q3 2020 (YoY)), while limiting their COGS growth rate to 27.5% which helped them to obtain a higher gross margin. On the topic of gross profit, Asbury was able to grow their gross profits by 43%, which led to an increase in income from operations of 69%, and an increase in net income (after-tax) of 53% (52% increase in EPS). Overall, the Q3 2021 report was great, and signifies that Asbury is on track to surpass their goal of 20% CAGR.
  • Q3 2021 Financial Performance (Bad): Asbury had very little to talk about in terms of bad figures in their earnings. However, in Q3 2021, Asbury’s used vehicle wholesale revenues decreased by 11%, their SG&A costs increased by 30% (mainly due to the increase in personnel from acquisitions), and their long-term debt increased by 14% (which isn’t worrying due to acquisitions and a high ROD). Furthermore, their % of sales from their parts & service, and Financial & Insurance segments decreased (which is not a favourable trend, as they yield the highest gross margins in these 2 segments).
  • Enter into a position below the fair value, preferably at/below $170/share.
  • Hold long-term (1–3 years)
  • Re-evaluate the position as new data is released (especially their financial reports to see if they continue their growth, or if their growth starts to fall short of expectations).

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