We believe this stock could gain by more than 40% within the next two years.
**ON ALL TRADES, it is important to use proper risk management to correctly allocate and protect your capital.
Outlier Discovery Grid: Miles Ahead of the Competition
This chart displays Purchase Intent (PI) Mention growth on the x-axis and Consumer Happiness on the y-axis. The ideal positioning is in the top-right corner, indicating a potential bullish opportunity.
AN is vastly outperforming other auto dealerships and retailers in terms of both Consumer Demand and Happiness.
Although AutoNation has a smaller level of Consumer Mention volume (indicated by relative dot size) when compared to Carvana (CVNA) and CarMax (KMX), the Outlier Discovery Grid shows that AN is growing faster than other automotive retailer names while maintaining a high level of Consumer Happiness.
Demand Strengthens Into 2023
AN Purchase Intent – which measures consumer mentions of buying a new or pre-owned vehicle from AutoNation – is climbing after a strong 2022, trending up +127% YoY on a 90-day moving average.
This comes as AutoNation benefits from rising demand for both luxury and used vehicles and as more Americans become aware of AutoNation's customer-centric approach to the car buying experience.
Comprehensive AN demand was up +4% YoY in Q4 of 2022 and is accelerating in the current quarter — currently on pace to double YoY by quarter-end.
Consumers have also noted AutoNation's improving selection of vehicles across the price spectrum, which is driving social media discussion and visits to AutoNation's 300+ locations.
A key metric that's highly correlated with company revenue is website traffic, and for AutoNation, Global Returning Users to its website are up 34% YoY on a rolling three-month average.
Well-Aligned with Customer Values
Over the past three months, AutoNation's combined consumer sentiment mentions were 80% positive, up +10% from the same time last year.
Customers are expressing happiness towards the deals, quick sales process, and above-and-beyond service they experience with AutoNation.
Consumer Mentions of purchasing a new car are up +19% QoQ and +13% YoY on a 90-day moving average.
The key here? In many cases, these are high-end vehicles.
LikeFolio's consumer data provides a zoomed-out view of the trends driving consumers' automotive purchasing habits over the past year and reveals noted outperformance among high-tech vehicles:
Demand for high-tech autos – including electric vehicles and luxury brands – is up significantly this year as affluent consumers continue to show resilience in a challenging economy.
At the same time, mentions of buying new or used cars and trucks are trending higher thanks to gradually improving inventories and lower prices. Auto retailers focused on brick-and-mortar storefronts are benefitting from a shift away from online car platforms to the more personalized experience of dealerships.
The Bottom Line
AutoNation is winning at both ends of the pricing spectrum. Affluent car buyers are exhibiting resilient demand for EVs (electric vehicles) and luxury autos. AutoNation's premium luxury segment accounts for nearly 40% of vehicle sales and should continue to benefit from inflation/rate-proof sales – even in a recessionary environment. At the same time, an expanding used vehicle business is benefitting from a rising sector of budget-conscious consumers in search of a good deal. After opening its twelfth AutoNation USA used vehicle location in the third quarter of 2022, management said it is on track to 10x this footprint over the next four years.
Pent-up demand could drive strong growth as inventory improves. Consumers that have delayed vehicle purchases due to high prices, high loan rates, and limited supplies are starting to return to the market. LikeFolio data shows that new and used car buying interest is tracking higher with owned cars stretched to their limits and supply chain constraints easing. AutoNation's broad selection of 32 new and used vehicle brands should make it a go-to destination for car buyers as the industry's demand-supply imbalance normalizes.
RepairSmith should bolster AutoNation's value proposition. AutoNation just closed its acquisition of mobile repair and maintenance service provider RepairSmith to bring added value to convenience-minded customers. We see this as a big boost to AN's "after-sales" business and its goal of becoming a full lifecycle solution for car owners.
Summary
AN is the country's largest auto retailer with over 300 stores and collision centers. Our data points to strong trends in consumer demand and sentiment that we see leading to accelerating revenue growth over the next few years. AutoNation's focus on "personalization" and "self-service" is resonating with car buyers who speak highly of the deals, pain-free experience, and high level of service. The stock is trading within 10% of its August 2022 all-time high but at just five times trailing earnings.
We see this as an opportunity to invest in an omnichannel industry leader that is in the driver's seat for the future of car buying.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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