5 Undervalued Mid-Cap Stocks To Buy

2. Asbury Automotive Group, Inc. (NYSE:ABG)

PE Ratio: 5.51

Number of Hedge Funds Having Stakes in the Company: 34

Asbury is a George-based car dealership company that continues to post robust financial performance despite a challenging macro environment that is affecting the automotive industry. In the third quarter of 2022, Asbury Automotive Group, Inc. (NYSE:ABG)’s revenue came in at $3.87 billion, which showed a 61% growth when compared to the comparable quarter last year. Asbury Automotive Group, Inc. (NYSE:ABG) in the past made a series of acquisitions and expansion initiatives that are now showing their results.

For the third quarter, adjusted EPS came in at $9.23, beating the estimates by $0.01.

Hedge fund sentiment for the stock is positive. As of the end of the third quarter, 34 hedge funds tracked by Insider Monkey reported having stakes in Asbury Automotive Group, Inc. (NYSE:ABG), compared to 27 funds in the previous quarter. The biggest stakeholder of Asbury Automotive Group, Inc. (NYSE:ABG) was Lauren Taylor Wolfe’s Impactive Capital, which owns a $333 million stake in Asbury Automotive Group, Inc. (NYSE:ABG). Famous value investor David Abrams also has a $320 million stake in the firm.

Bonhoeffer Capital Management made the following comment about Asbury Automotive Group, Inc. (NYSE:ABG) in its Q3 2022 investor letter:

“One of our holdings in the distribution theme is Asbury Automotive Group, Inc. (NYSE:ABG), an automobile dealership firm. Asbury’s growth model is through same-store sales growth (4% per year), internet distribution (10% per year), and synergistic M&A (5% per year). These are enhanced by opportunistic operational leverage from scale and share repurchases (5% annual growth). Over the past 10 years, Asbury’s net income margins are up 120% with a 5x increase in revenues. These factors should lead to about a 20% EPS growth going forward. Ashtead has had 19% and 31% EPS growth over the past five and 10 years, respectively.

As can be seen below, a large portion of future growth is based upon the growth of internet sales. Both Asbury and Lithia have internet strategies which capture a younger demographic who do not visit dealerships with the same frequency as older folks. Asbury, through its online platform Clicklane, has found internet purchasers have very little overlap with existing customers; 95% are new customers. Asbury’s strategy is to target customers who are within 20 miles of an existing Asbury location vs. online only competitors (like Carvana) and Lithia. Asbury has had a per-store growth rate of 67% over the last year and only sells cars online in about 60% of its current footprint. This growth rate will decline going forward as the markets mature, but it will be bolstered as Clicklane is rolled out to the remaining 40% of Asbury’s footprint…” (Click here to read the full text)