7 Best Small Cap Automotive Stocks to Buy

4. OPENLANE Inc. (NYSE:KAR)

Number of Hedge Funds Holders: 25

OPENLANE Inc. (NYSE:KAR) operates as a digital marketplace for used vehicles, connecting dealers, rental companies and independent sellers to buyers across the United States, the Philippines, Europe, and Uruguay. The company runs its business through two main business segments, namely Marketplace and Finance. The marketplace segment offers an app based digital platform that allows dealers to buy and sell used vehicles. The platform includes various features including different sales formats, inspection services, transportation, and administrative services. On the other hand, the finance segment provides vehicle financing services such as the floorplan services (short-term, inventory-secured loan financing for independent used vehicle dealers). OPENLANE Inc. (NYSE:KAR) generates its revenue through charging fee per transaction on its marketplace platform and through interest and fee from its finance service to dealers.

What set’s OPENLANE Inc. (NYSE:KAR) apart from its competitors is its ability to facilitate large volumes of vehicle transactions. In 2023 alone the OPENLANE platform was used to transact more than 1.3 million used vehicles, amounting to approximately $24 billion in sales. The company posted a successful first quarter of 2024 and grew its revenue by 4% year-over-year during the quarter, mainly due to a 13% increase in unit volume sales through its marketplace segment. The increase in marketplace volumes also contributed to the profitability of the company and delivered approximately $35 million in adjusted EBITDA. Although the financial segment of OPENLANE Inc. (NYSE:KAR) witnessed a 2% decrease in net revenue, due to higher net credit losses and low interest rate, it was still able to generate $40 million in adjusted EBITDA. As a result, the consolidated adjusted EBITDA of the company for the first quarter reached $75 million and the company was able to generate $100 million in cash flow from operations.

KAR isn’t too expensive at current levels. It’s trading at 22 times its forward earnings, a 15% discount to its 5 year average. Analysts expect earnings to grow by 22% during the year to reach $0.22. Wall Street is also bullish on KAR, with 7 analysts having a consensus Buy opinion. The average price target of $19.50 implies an 11.62% upside from current levels.

KAR was held by 25 hedge funds in Q1 2024, with total stakes worth $309.9 million. Of those Hawk Ridge Management was the largest investor and held a position worth $76.2 million.