Last October 2014, I began looking at the auto dealership industry, when this cyclical sector was experiencing a sharp price pullback over several weeks. During my research, the sector’s stock prices suddenly spiked upward, when Berkshire Hathaway announced their acquisition of the largest privately-owned auto dealership (the Van Tuyl Group) and Warren Buffett revealed their intention to acquire more auto dealerships and groups. I made the following post at the Value Hounds board on 10/8/2014,
http://discussion.fool.com/value-candidates-in-auto-dealership-g…
with a follow up primarily addressing high total debt/equity ratios.
http://discussion.fool.com/kelbon-thanks-for-your-usual-thought-…
After conducting in-depth due diligence on all 7 public companies, I decided to invest in Lithia Motors, Inc. (LAD) on 10/16/2014. Since then over a 6-month period, most of these dealerships have realized handsome price gains, in particular, Carmax, Inc. (KMX) and LAD with impressive gains of 61.4% and 44.8%, respectively, as shown in the following table.
10/16/14 4/8/15 % GAIN MKT CAP PE(ttm) FWD PE
KMX 45.88 74.07 61.4% 15.47B 27.01 21.95
LAD 70.08 101.47 44.8% 2.66B 18.97 14.44
PAG 39.24 52.87 34.7% 4.77B 16.54 12.91
AN 48.22 64.81 34.4% 7.36B 18.36 14.48
ABG 63.96 84.93 32.8% 2.34B 22.95 14.69
GPI 72.04 85.91 19.3% 2.01B 23.53 11.35
SAH 22.74 24.99 9.9% 1.27B 13.40 11.42
For those interested, here’s a recent LAD investor presentation:
http://www.lithiainvestorrelations.com/201412EarningsPresent…
I had my value investor hat on during my aforementioned due diligence that BTW included a number of this board’s investing criteria (back then I did not follow this board).
Here are some of the latest financial growth trends for LAD:
TOTAL REVENUE
FY 2009 $ 1.74 B
FY 2010 2.13 B
FY 2011 2.69 B
FY 2012 3.31 B
FY 2013 4.00 B
FY 2014 5.39 B (acquired privately owned DCH Auto Group, Inc.)
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ADJUSTED EARNINGS PER SHARE (non-GAAP from 10-K Annual Reports)
FY 2009 $ 0.53
FY 2010 0.93
FY 2011 1.99
FY 2012 2.99
FY 2013 3.99
FY 2014 5.11
LAD Guidance:
FY 2015 6.00
FY 2016 7.00
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Q4’2013 TO Q4’2014 UPDATE (LAD investor presentation)
Revenue Growth 75.0%
Gross Profit 63.9%
Adjusted EPS 44.9%
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Some analysts believe that LAD is a very attractive acquisition target for Berkshire Hathaway. LAD is a third-generation, family controlled and operated business that IMO will not be interested. Instead, LAD will continue to take advantage of the ongoing atuo dealership consolidation trend by judiciously expanding and acquiring other dealerships within their financial means and well-established fiscal discipline.
Lithia Motors (LAD) nicely fits in my investment portfolio with its easy-to-understand, easy-to-follow business model.
There are some other worthy choices in this sector, so as always, conduct your own due diligence.
Regards,
Ray