5 Best Small Cap Automotive Stocks To Buy

In this article, we discuss 5 best small cap automotive stocks to buy. If you want to read our detailed discussion on the automotive industry, head over to 10 Best Small Cap Automotive Stocks To Buy. 

5. America’s Car-Mart, Inc. (NASDAQ:CRMT)

Number of Hedge Fund Holders: 12

America’s Car-Mart, Inc. (NASDAQ:CRMT) is an automotive retailer that specializes in selling older model used vehicles and offering financing options to its customers. The company was established in 1981 and is headquartered in Rogers, Arkansas. America’s Car-Mart, Inc. (NASDAQ:CRMT) is one of the best automotive stocks to watch. On May 24, the company FQ4 GAAP EPS of $0.32 and a revenue of $388.3 million. Revenue for the quarter increased 12.2% year-over-year and outperformed Wall Street estimates by $20.37 million. 

According to Insider Monkey’s first quarter database, 12 hedge funds were bullish on America’s Car-Mart, Inc. (NASDAQ:CRMT), compared to 13 funds in the prior quarter. Adam Peterson’s Magnolia Capital Fund is the largest stakeholder of the company, with 725,500 shares worth $57.4 million. 

Here is what Merion Road Capital specifically said about America’s Car-Mart, Inc. (NASDAQ:CRMT) in its Q3 2022 investor letter:

“During the quarter I initiated a position in America’s Car-Mart, Inc. (NASDAQ:CRMT). CRMT is a used auto retailer and financing company serving low-end consumers. Given their focus on rural areas with limited public transportation, CRMT offers an essential service – a way for poor credit quality customers to get to work. As you might expect, loan charge-offs have averaged 25% annually and typically occur when a customer loses their job or the car breaks down. To offset this risk, CRMT charges a hefty 16% annual rate.

You might wonder why I would buy this given the economic sensitivity of the low-end consumer and falling auto prices. Should unemployment pick-up we will likely see increasing loss incidence rates. And with falling auto prices it would be logical to assume that their upfront margins would compress and loss recovery rates would fall.

Over the past two decades CRMT loss reserves peaked two times to the 32-35% range. In both of these periods CRMT loss expenses exceeded actual charge-offs of 30-33% as the company had to increase their balance sheet reserves. The good news is that, today, balance sheet reserves are already at the high end of the range at 22.4%. Even considering those previous catch-ups, CRMT has been profitable every year over this time frame. Of course, it is entirely possible that we enter another period of high charge-offs. But these are relatively short-term loans (42 months on average) where the majority of defaults occur within the first twelve months. Given the quick turnaround, CRMT has the opportunity to adjust its underwriting standards in real time. As of last quarter loan’s delinquent 30 days or more stood at 3.6%, slightly below the long-term average. Furthermore, in April of this year the company financed half of their loans via a non-recourse securitization. Not only does this diversify their funding sources, but it also helps ringfence some risks to the enterprise…” (Click here to read the full text)

4. Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE)

Number of Hedge Fund Holders: 14

Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE) is involved in the design, development, manufacturing, engineering, and distribution of electric vehicles and related accessories. It was incorporated in 2014 and is headquartered in Los Angeles, California. Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE) is one of the best automotive stocks to monitor. 

On June 27, Faraday Future Intelligent Electric (NASDAQ:FFIE) secured an additional funding commitment of $90 million along with the acceleration of an existing commitment of $15 million. The investment round was led by ATW Partners Funds and Senyun International. This financing will aid in the continued production and delivery of the FF 91 electric vehicle and support the company’s long-term strategic objectives.

According to Insider Monkey’s first quarter database, 14 hedge funds were bullish on Faraday Future Intelligent Electric (NASDAQ:FFIE), with combined stakes worth $2.3 million. Ryan Tolkin’s Schonfeld Strategic Advisors is a prominent stakeholder of the company, with 528,000 worth $186,964. 

3. OPENLANE, Inc. (NYSE:KAR)

Number of Hedge Fund Holders: 17

OPENLANE, Inc. (NYSE:KAR) operates a digital marketplace for used vehicles. It serves as a platform connecting sellers and buyers in multiple regions, including North America, Europe, the Philippines, and Uruguay. OPENLANE, Inc. (NYSE:KAR) is one of the best automotive stocks to invest in. On May 2, the company reported Q1 GAAP earnings per share of $0.01, in line with market consensus. Revenue for the quarter increased 13.9% year-over-year to $420.6 million, outperforming Wall Street estimates by $33.12 million. 

According to Insider Monkey’s first quarter database, 17 hedge funds  were bullish on OPENLANE, Inc. (NYSE:KAR), compared to 19 funds in the prior quarter. Amy Minella’s Cardinal Capital is the largest stakeholder of the company, with 5 million shares worth $69 million. 

White Brook Capital made the following comment about KAR Auction Services, Inc. (NYSE:KAR) in its Q1 2023 investor letter:

“KAR Auction Services, Inc. (NYSE:KAR): More constrained banks have resulted in higher yields for incumbent non-bank dealer floor plan financing companies. This should positively impact the ability of KAR, a very large dealer floor plan lender, to lend profitably at higher yields.

KAR’s loans are typically installment loans where the principal must be paid along with interest.  Higher yields on still-high used car prices should incentivize dealers to wholesale cars they cannot retail more quickly and to accept lower bids for those cars when they do try to wholesale them. This is a positive for the fundamentals of both company divisions that has gone largely unappreciated.”

2. Cars.com Inc. (NYSE:CARS)

Number of Hedge Fund Holders: 17

Cars.com Inc. (NYSE:CARS) operates a digital marketplace for the automotive industry. The company facilitates connections between dealers and manufacturers with potential buyers, offering financing tools for instant online loan screening and approvals. Cars.com Inc. (NYSE:CARS) is one of the top automotive stocks to monitor. On May 4, the company reported a Q1 GAAP EPS of $0.17 and its revenue came in at $167.1 million, up 5.6% compared to the prior-year quarter. The number of Average Monthly Unique Visitors (UVs) increased by 7% year-over-year, reaching 28.5 million. Additionally, web traffic saw an 11% year-over-year growth, amounting to 164.8 million views.

According to Insider Monkey’s first quarter database, 17 hedge funds were bullish on Cars.com Inc. (NYSE:CARS), compared to 14 funds in the earlier quarter. Bruce Emery’s Greenvale Capital is the leading stakeholder of the company, with 5 million shares worth $96.50 million.

Here is what Spree Capital Advisers has to say about Cars.com Inc. (NYSE:CARS) in its Q1 2021 investor letter:

“Our businesses are doing well, and thus we only made one minor adjustment to the portfolio. In the first quarter we sold Cars.com (CARS) in order to redeploy funds elsewhere. Our return on CARS of 40% hit our bogey over our nearly two-year holding period but extracted a modest opportunity cost as it underperformed the rest of the portfolio. Our returns and exposure continue to be weighted towards high quality businesses with long duration runways for scalable revenue and earnings growth.”

1. Sonic Automotive, Inc. (NYSE:SAH)

Number of Hedge Fund Holders: 20

Sonic Automotive, Inc. (NYSE:SAH) is an automotive retailer in the United States with its operations divided into three segments – Franchised Dealerships, EchoPark, and Powersports. On July 27, Sonic Automotive, Inc. (NYSE:SAH) reported a Q2 non-GAAP EPS of $1.83 and a revenue of $3.65 billion, surpassing Wall Street estimates by $0.19 and $50 million, respectively. Sonic Automotive, Inc. (NYSE:SAH) is one of the best automotive stocks to invest in. 

According to Insider Monkey’s first quarter database, 20 hedge funds were bullish on Sonic Automotive, Inc. (NYSE:SAH), compared to 22 funds in the prior quarter. Michael Moriarty’s Teewinot Capital Advisers is the biggest stakeholder of the company, with 244,695 shares worth $13.3 million. 

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