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 CarGurus, Inc. (NASDAQ:CARG) 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.
An online automotive marketplace platform with a large selection of car listings.
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).
CarGurus, Inc. (NASDAQ:CARG)
Number of Hedge Fund Holders: 29
CarGurus, Inc. (NASDAQ:CARG) is one of the best auto and truck dealership stocks to invest in. It operates one of the most visited online platforms that helps people buy and sell cars. The company functions through two main areas U.S. Marketplace and Digital Wholesale. It has a presence in the United States, Canada, and the United Kingdom.
The popularity and user traction the company generates from its online platform is one of its prominent competitive edges. During the fiscal third quarter of 2024, CarGurus, Inc. (NASDAQ:CARG) reached 42 million global monthly unique visitors, which as per management’s statistics is 58% more than its closest competitor. User engagement on its platform resulted in a 15% year-over-year growth in listings revenue. Management has been constantly updating its platform for more data-driven functionality and insights. It recently introduced several new reports such as the Next Best Deal Rating and Acquisition Insights report, which have been well-received by dealers. Nearly half of eligible dealers in the US are utilizing these insights, resulting in significant price adjustments based on recommendations.
CarGurus, Inc. (NASDAQ:CARG) expanded its Marketplace revenue by double-digit year-over-year growth for the third consecutive quarter. Fiscal third quarter 2024 Marketplace revenue for the company came in at $204 million, indicating a 15% increase. Management attributed revenue growth to new dealer ads globally, migration towards higher subscription tiers, and greater adoption of value-added products and services.
Meridian Small Cap Growth Fund stated the following regarding CarGurus, Inc. (NASDAQ:CARG) in its fourth quarter 2023 investor letter:
“CarGurus, Inc. (NASDAQ:CARG) is at the forefront of the online automobile sales industry, operating a web-based retail marketplace and holding a 50% stake in an online auction wholesaler. The marketplace business is unique in that it presents buyers with an unbiased list of available vehicles ranked on their value— a combination of the price and quality of the vehicle. Meanwhile, dealers are drawn to CarGurus.com’s attractive pricing and extensive suite of ancillary services. During the quarter, the stock appreciated as the company reported accelerating marketplace growth, up 8% from 4% in the previous quarter. The acceleration was primarily driven by rising inventory on dealer lots, which is forcing dealers to advertise to stimulate demand for the first time post-COVID. CarGurus also has been successful in passing through price increases, as price breaks provided during COVID are coming off the books and the company is the lowest cost source of leads for dealers. The company announced during the quarter that it would be buying the remaining stake in CarOffer, its auction-based wholesaling business. We believe the price, which is based on a depressed 2023 valuation, provides excellent value for CarGurus shareholders. We continue to believe in the long-term fundamentals of the company and maintained our position during the quarter.”
Overall, CARG ranks 7th on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of CARG 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 CARG 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.
