We recently compiled a list of the 7 Best Auto and Truck Dealership Stocks to Buy. In this article, we are going to take a look at Group 1 Automotive, Inc. (NYSE:GPI ) against the other auto and truck dealership stocks.
US Car and Truck Dealership Market
The auto dealership market is one of the key segments of the greater automotive industry. According to a report by Verified Market Research, the auto dealership industry was valued at $257.30 billion in 2023. The market is forecasted to grow at a compound annual growth rate of 4% to reach $338.6 billion by 2030.
The auto dealership market is a consumer-centric industry, which revolves around customer confidence, inflation rates, interest rates, and the overall regulatory environment. According to a press release by Reuters on July 26, the US car market is facing headwinds due to weak prices, high inventories, and difficulties in logging profits.
The slowed market environment has hit shares of major auto manufacturers and car dealerships nationwide. On top of the macro environment challenges, the market was hit by cyber attacks in June 2024. On June 20, CNN reported that the US and Canadian dealership market stood still due to a cyber attack incident at a data provider called CDK Global. CDK Global data is used by more than 15,000 auto dealers across all major countries. While not all auto dealers use CDK to process orders, those that did faced slower sales growth during the quarter.
As per Reuters, the overall new vehicle sales throughout the US in June 2024 stood at 1.32 million units, representing a seasonally adjusted annualized rate of 15.29 million units during the year. Moreover, affordability also remains one of the key concerns for the market, due to which inventories are not expected to advance as strongly as they did over the past 12 months.
Looking ahead, according to the latest Cox Automotive Dealership report on June 10, the Cox Automotive Dealer Sentiment Index (CADSI) remained stable from the first quarter to the second quarter of 2024. The current market index score for Q2 is 42, which suggests that US auto dealers perceive the market to be weak. For context, the score was 45 a year ago and below the threshold of 50. Moreover, the current market expectation shows a decline in market expectations for the next three months, as the market outlook has dropped from a score of 51 in Q1 to 44 in Q2. The downward trend is attributed to the weaker tax refund season and the ongoing political instability due to elections. To read more about the automotive industry you can look at the 7 Best Small Cap Automotive Stocks to Buy.
Our Methodology
To compile our list of the 7 best auto and truck dealership stocks to buy, we used the Finviz stock screener. We selected Auto & Truck Dealership industry to get a consolidated list of stocks. Next, we selected and ranked the stocks that were the most widely held by institutional investors, as of Q1 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A line of new and used cars in a large auto dealership’s showroom.
Group 1 Automotive, Inc. (NYSE:GPI)
Number of Hedge Fund Holders: 38
Group 1 Automotive, Inc. (NYSE:GPI) is one of the best auto and truck dealership stocks according to hedge funds. It was held by 38 hedge funds during Q1 2024, with total stakes worth $496.174 million.
Group 1 Automotive, Inc. (NYSE:GPI) is a Fortune 500 company and a leading automotive retailer in the United States and the United Kingdom. The company sells new and used vehicles including cars, light trucks, and vehicle parts. The company is also involved in arranging vehicle financing and insurance contracts. Group 1 Automotive, Inc. (NYSE:GPI) has a total of 260 dealerships, 337 franchises, and 45 collision centres across the US and UK. The company also operates an omni-channel platform that helps customers access its services.
What sets Group 1 Automotive, Inc. (NYSE:GPI) apart from its competitors is its ability to leverage its omni-channel platform, during market challenges such as the CDK outage to deliver record revenues. The company reported a total revenue of $4.7 billion, which increased 3% year-over-year on the back of new vehicle revenue of $2.4 billion. The new vehicle sales for the company in the US were up 7%, reflecting resilient demand and management’s focus on driving volume. Group 1 Automotive, Inc. (NYSE:GPI) was able to pull off record sales during the quarter due to an effective transition to its omni-channel platform during the CDK outage.
Moreover, the company has been acquiring dealerships throughout the quarter to grow its market share. It acquired 4 Mercedes-Benz dealerships and UK operations of Inchcape, a prominent automotive distributor and retailer with operations worldwide. The acquisitions will not only add to the dealership portfolio of the company but will open new avenues of growth in the future.
Should you invest in Group 1 Automotive, Inc. (NYSE:GPI)?
Group 1 Automotive, Inc. (NYSE:GPI) can be a good investment considering it has delivered an exceptional quarter during tough conditions. Moreover, the company has a history of generating healthy revenue and profits. Over the past decade the company has been able to grow its top line by 7% and its bottom line by over 18%. Moreover, the stock is trading at 8 times its forward earnings, which is a 43% discount to its peers. Given that earnings are expected to grow by 2.31% this year to $9.72, the stock is cheap.
Nine analysts have a consensus Buy opinion on the stock and their 12-month median price target of $367.5 represents an upside of 8% from current levels.
Conventum – Alluvium Global Fund stated the following regarding Group 1 Automotive, Inc. (NYSE:GPI) in its Q2 2024 investor letter:
As most readers know, the Fund is constrained by “risk” regulations, one of which stipulates that no more than 40% of the Fund’s assets can be held in positions of above 5% and no position can be greater than 10% (known as the 5/10/40 rule). By early May, as a result of our March buying and the share price rising, Group 1 Automotive, Inc. (NYSE:GPI) (up 1.9%) had come to represent more than 5% of the Fund’s assets. Whilst we like Group 1, we also like all the other Fund holdings that are above 5%. And, unlike those, when it comes to Group 1 there is another attractive company in the same sector available for our investment. Although we prefer the Group 1 model, the economics of Autonation look attractive to us. And by introducing this into the portfolio we could thereby invest more than 5% of assets in this sector without necessitating the sale of other attractive large positions. And so after selling a little Group 1 and buying Autonation we ended the quarter with 4.1% and 1.9% positions respectively.
Overall GPI ranks 4th on our list of the best auto and truck dealership stocks to buy. You can visit 7 Best Auto and Truck Dealership Stocks to see the other auto and truck dealership stocks that are on hedge funds’ radar. While we acknowledge the potential of GPI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GPI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.
