We recently published a list of the 10 Best Auto and Truck Dealership Stocks to Invest In. In this article, we are going to take a look at where Carvana Co. (NYSE:CVNA) stands against the other best auto and truck dealership stocks to invest in.
An Outlook of the United States Automotive Sales
On December 20, Cox Automotive reported that November retail sales figures of used vehicles rose by nearly 2% from October, reaching approximately 1.4 million vehicles. The figure indicated a robust demand as it marks a 13% increase compared to November 2023. Scott Vanner, a senior analyst at Cox Automotive, noted that sales are performing stronger than typical seasonal patterns, which usually see a slowdown due to adverse weather and reduced selling days during the holiday season. The current year has defied these trends with double-digit growth year-over-year. In addition, certified pre-owned vehicle sales also saw a month-over-month increase of 2.7%, rising from 203,272 units in October to an estimated 208,708 units in November 2024. However, on a year-over-year basis, CPO sales were down 3.5%, attributed to fewer available off-lease and trade-in vehicles.
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Looking ahead to the current month, another report by Cox Automotive expects sales volume for December to be around 1.47 million vehicles, representing a 7.7% increase from the previous month but flat year-over-year. Moreover, December’s seasonally adjusted annual rate (SAAR) for new-vehicle sales is projected to be 16.5 million, marking an increase from 15.9 million in December 2023 and matching November’s figure. Charlie Chesbrough, Cox Automotive’s senior economist in a December 17 report noted that the end of the U.S. election season has contributed to a boost in sales. Buyers are motivated by concerns about upcoming potential policy changes and EV discounts that may not last, leading to a favorable buying environment as 2024 closes.
In terms of quarterly and yearly analysis, the fourth quarter is anticipated to finish with a SAAR of 16.4 million, representing a shift to a higher sales pace since October. The report attributes these movements to better inventory levels and increased consumer confidence topped with lower interest rates. On the other hand, full-year new vehicle sales for 2024 are expected to reach approximately 15.85 million units, reflecting a 2.3% increase from the last year. Lastly, the report forecasts that new vehicle sales will continue to grow in 2025, potentially reaching 16.3 million units, driven by ongoing improvements in consumer confidence and favorable market conditions.
A customer buying a used car with the help of a finance specialist.
Our Methodology
To curate the list of the 10 best auto and truck dealership stocks to invest in, we used the Finviz stock screener. Using the screener, we aggregated an initial list of auto and truck dealerships and sorted it by market capitalization. Next, we sourced the number of hedge fund holders for each stock from Insider Monkey’s third-quarter hedge fund database. The list is ranked in ascending order of the number of hedge fund holders.
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).
Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 66
Carvana Co. (NYSE:CVNA) operates an online platform for buying and selling used cars. It stands out due to its innovative use of technology including 360-degree imaging technology that provides detailed views of each car allowing customers to inspect the vehicle virtually. It also offers same-day home delivery and pick up from one of its unique vending machines, once a purchase is made.
The company reported an exceptional third quarter in 2024, achieving record financial performance across several key metrics, despite operating in a challenging automotive market. Management noted that over the last two and a half years, they have implemented strategies to enhance operational and financial efficiencies, allowing it to grow rapidly while maintaining profitability. During the quarter, Carvana Co. (NYSE:CVNA) sold 108,651 retail units, up 34% year-over-year, while total revenue reached $3.655 billion indicating a 32% increase during the same time.
As a result of management’s efforts, these sales figures came in with record income growth. The company reported a record Adjusted EBITDA margin of 11.7%, which as per the management is a new all-time best for public automotive retailers. Carvana Co. (NYSE:CVNA) attributed growth to its improved customer experience, expanding inventory selection, and increased brand awareness. Moving forward, management plans to invest an additional $5 million to $10 million in advertising in the 4th quarter to further expand its reach. It is the best auto and truck dealership stock to invest in now.
Optimist Fund stated the following regarding Carvana Co. (NYSE:CVNA) in its Q3 2024 investor letter:
“Carvana Co. (NYSE:CVNA) continues to perform well with unit growth accelerating from mid-teens in Q1 to over 30% in Q2, while achieving double the adjusted EBITDA margins of the automotive retail sector. It remains our largest position.”
Overall, CVNA ranks 1st on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of CVNA to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CVNA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
