We recently compiled a list of the 8 Best Car Repair 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 car repair stocks.
An Overview of the Global Automotive Aftermarket Industry
According to a report by Fortune Business Insights, the global automotive aftermarket industry was valued at $418.95 billion in 2023. The market is expected to reach $568.19 billion by 2032. The acceptance of electric and hybrid vehicles is expected to propel the growth in demand for related aftermarket products. Moreover, the rise in automotive e-commerce is also contributing to increased sales in the market. As a result, major players in the industry are developing their omnichannel platforms to facilitate online automotive aftermarket services.
The KPMG Corporate Finance recently released its automotive aftermarket report for the fiscal third quarter of 2024. The report highlights that the decline in new car purchases can lead to growth for the aftermarket industry. Despite the recent cut in the Federal Reserve’s interest rates, experts believe new car purchases may not see an immediate uptick. This is because auto loan interest rates typically adjust slowly, thereby remaining high even after the Fed’s actions. Currently, average auto loan rates are still exceeding 9.61% for new vehicles and nearly 14% for used vehicles, which poses a significant barrier to new car purchases. As a result, many consumers are opting to defer vehicle purchases and are increasingly relying on the aftermarket for more affordable maintenance and repair solutions to extend the lifespan of their existing vehicles.
Moreover, the gradual adoption of battery-electric vehicles (BEVs) and software-defined vehicles is reshaping the automotive aftermarket landscape. While these advancements may lead to less frequent maintenance needs, they also introduce new service requirements related to battery systems and advanced electronics. According to forecasts from Bank of America Global Research, BEVs are expected to comprise about 8% of total vehicle sales in 2024, increasing to approximately 29% by 2030.
While analyzing the performance of the industry during the quarter, the report highlighted that the S&P 500 Index and Dow Jones Industrial Average (DJIA) saw significant growth over the past year, up 34.4% and 26.6%, respectively. The Automotive Aftermarket Index grew at a slower pace of 14.3%. However, it is noteworthy that in Q3 2024, this index outperformed both major indices with a growth rate of 8.4%. Specific segments within the aftermarket showed varied performance. For instance, the Parts Suppliers grew by 13.1% while Retailers & Distributors grew by 8.9%. The Enthusiast Products segment rebounded with an 11.3% increase after earlier declines, whereas Service Providers experienced a slight decline of 3.2%.
Regardless of the challenges stemming from high interest rates and inflation the automotive aftermarket has shown resilience and proved to be recession-proof. The shift towards maintaining older vehicles rather than purchasing new ones, combined with technological advancements in vehicle types is fueling growth in the industry. Moreover, trends suggest that while immediate growth in new car sales may be sluggish, there remains a robust demand for aftermarket services and products as consumers adapt to changing economic conditions.
Our Methodology
To curate the list of 8 best car repair stocks to invest in, we used the Finviz stock screener and other listings on the internet. Using our sources we aggregated a list of car repair stocks sorted by market capitalization. Next, we ranked these stocks by the number of hedge fund holders sourced from Insider Monkey’s third-quarter hedge funds database.
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: 40
Group 1 Automotive, Inc. (NYSE:GPI) is an international car retailer primarily operating in the United States and the United Kingdom. It owns around 338 franchises, 260 dealerships, and 44 collision centers, specializing in vehicle repairs after accidents. The company also operates AcceleRide, an omnichannel that facilitates the buying and selling of vehicles.
Group 1 Automotive, Inc. (NYSE:GPI) proved to be resilient in dealing with the CDK outage. It generated an all-time quarterly high of $5.2 billion in revenue, up 11% year-over-year. Its Parts and Services segment, which deals with car repairing, led the growth by improving 16% during the same time. Conventum – Alluvium Global Fund in its Q3 2024 investor letter mentioned that the company has remained resilient in a tough market environment. It has been growing its dealership network within the United States and the United Kingdom. For instance, management announced the acquisition of Inchcape’s retail operations, four Mercedes-Benz dealerships, and a large BMW store in Lincoln. The expansions will add 54 dealerships to its portfolio and allow the company to make around $2.7 billion in annual revenue from merely Inchcape’s retail operations. It is one of the best car repair stocks to invest in.
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 3rd on our list of the car repair stocks to invest in. 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 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.