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 Group 1 Automotive, Inc. (NYSE:GPI) 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 line of new and used cars in a large auto dealership’s showroom.
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).
Group 1 Automotive, Inc. (NYSE:GPI)
Number of Hedge Fund Holders: 40
Group 1 Automotive, Inc. (NYSE:GPI) ranks 4th on our list of best auto and truck dealership stocks to invest in. It operates as an international car retailer, primarily in the United States and the United Kingdom. The company owns about 260 dealerships and 338 franchises and also operates an omnichannel platform called AcceleRide.
Conventum – Alluvium Global Fund in its Q3 2024 investor letter mentioned that Group 1 Automotive, Inc. (NYSE:GPI) has proved to be resilient within a challenging market characterized by CDK outage and the hurricane. Management has been busy growing its dealership network in the UK and the United States. On August 1, it announced the acquisition of Inchcape’s retail operations, adding 54 dealerships which will generate an estimated $2.7 billion in annual revenue. In addition, the company also acquired four Mercedes-Benz dealerships, expected to contribute around $105 million in revenue, and a large BMW store in Lincoln, projected to add approximately $125 million.
During the fiscal third quarter of 2024, Group 1 Automotive, Inc. (NYSE:GPI) generated an all-time quarterly high of $5.2 billion in revenue, indicating an 11% increase year-over-year. Revenue growth was driven by a record 53,775 new vehicle units sold during the quarter, representing an 18.6% increase year-over-year. Management remains confident regarding its prospects due to its growing footprint in both the US and UK markets.
Conventum – Alluvium Global Fund stated the following regarding Group 1 Automotive, Inc. (NYSE:GPI) in its Q3 2024 investor letter:
“Group 1 Automotive, Inc. (NYSE:GPI) was up 29.0%. Its second quarter results appeared to be above market expectations. We mentioned in our last report that US car dealers were heavily affected by the CDK software outage, but it seems Group 1 fared better than most. And now, with the 54 Inchcape dealership acquisition about to close (which will double its UK size and add USD 2.7b to revenue), we have updated our analysis. The result? Well despite becoming a larger entity with an expected 25% increase in revenue and 30% increase in earnings, there is negligible change to our valuation. Notwithstanding, we have no reason to doubt management’s confidence in the merits of the transaction. The numbers do not always tell the full story (or even part of it), and to us it makes sense to build scale in the UK. After the price gain, the business now trades at a small premium to our valuation. Not enough, in our view, to warrant major selling but when it reached 5.0% of the Fund we sold a little (to end the quarter at 4.2%) and we increased our position in Autonation (up 12.3%) which we consider slightly cheaper.”
Overall, GPI ranks 4th on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of GPI 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 GPI 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.