Asbury Automotive Group Stock Forecast: Over the past year, dealership stocks rose, creating greater confidence in the auto retailer market.
In 2019, five of the six publicly traded dealer groups reported a strong first-quarter. Asbury Automotive Group exceeded expectations by 27 cents.
The question is whether positive surprises lie in the future again or the risks will outweigh the tailwinds. Let’s see if Asbury stock is a buy or a sell?
Is Asbury Automotive Group a Buy?
Ashbury Automotive (NYSE: ABG) is redefining the car dealer experience with the mission to keep “customers for life.”
Based out of Atlanta, Ashbury Automotive has been in business for 25 years and in 2018, it was ranked 434 out of 500 in the Fortune 500. Operating as one of the largest American car retailers, its goal is to partner with the “best dealers in the best markets with the best brands.”
Asbury operates approximately 100 dealerships across ten states, as well as 25 collision repair centers. The cumulative knowledge of hundreds of veteran car dealers shared company-wide means Asbury Automative believes both customers and shareholders benefit.
In 2001, Asbury posted a net income of $43.8 million on revenues of $4.3 billion. One of its greatest selling points is that the market remains largely untapped. For example, the 100 largest industry groups accounted for less than 10% of the $1 trillion new car market.
By 2020, Asbury had sold 96,000 new vehicles, equating to revenues of $4.5 billion.
As stated in an Automative News survey, Asbury ranked fifth among the top dealership groups in the United States. It was during this time that the vast majority of dealer groups struggled, as car sales took a downturn.
However, Asbury entered the California market during this period, acquiring a half-dozen Bob Barker dealerships for $88 million in cash and stock.
In December 2019, Asbury Automotive entered into a definitive agreement to acquire Park Place dealerships for $1 billion.
Regarded as one of the best operators of luxury stores, David Hult, Asbury’s President and Chief Executive Officer, stated that:
“Their portfolio of stores comes with a strong base of loyal clients and 2,100 long-term team members throughout the high growth Dallas/Fort Worth market. We are also excited to grow our presence in Austin, Texas with a Jaguar/Land Rover open point, which is another high growth luxury market…
…This acquisition will transform our total portfolio to 50% luxury stores and add approximately $2 billion in expected annualized revenues.”
There is anticipated growth and based on the forecast from eight analysts, in the next 1 to 3 years, Asbury Automotive Group earned a forecasted annual earnings growth of 10.4%.
What are the Risks of Buying Asbury Automotive Group?
Asbury Automotive does have a net debt that is considerable, at 148% of its market cap. While its debt decreased from $1.9 billion to $1.8 billion in one year, net debt remains somewhat unchanged.
Asbury’s balance sheet has liabilities of US $1.24 billion due within a year plus US $981.4 million due beyond that.
The total liabilities exceed the company’s combined cash and near-term receivables but that’s not abnormal for a business of this kind with relatively low margins (compared to more scalable companies like Facebook that don’t rely on the sale of tangible goods as a primary revenue source). Asbury’s interest coverage is 3.6, remaining fairly strong — which is a positive sign.
Also, within the past year, Asbury increased its earnings before interest and tax by 5.5%. In turn, this reduced company debts in relation to its overall debt.
Read more about The Asbury 6 here — as Asbury Research continues to keep subscribers from losing money.
Asbury Automotive Group Stock Forecast Summary
Over the past three years, Asbury Automotive grew its earning per share by 16% per year — which for its industry represents a solid growth trajectory.
It is also important to note that Asbury’s insiders have a sizeable amount of capital invested in the company’s stock. More specifically, Asbury’s insiders currently have US $21 million worth of shares. In that sense, Asbury is certainly worthy of an investor’s watchlist.
Although Asbury Automotive showcases a historical EPS growth rate of 15.4%, investors should focus their attention on projected growth. In this case, Asbury’s EPS is anticipated to grow 18.5% this year, which is well above the industry average.
Asbury also currently has an impressive asset utilization ratio, also known as its sales-to-total-assets ratio (S/TA). This ratio essentially showcases how efficiently a company utilizes its assets in order to generate sales and in turn, growth.
Asbury’s current S/TA is 2.53. This means that the company receives $2.53 in sales for every dollar in assets. Once again, this is above the industry average of 1.78, indicating that Asbury is more efficient.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.