For anybody who follows LKQ Corporation, I notice that it has sold off by a quarter, down from recent all time highs just over $60.
Not a big fall, but a fall.
Consequently, it’s also not dirt cheap. But using a VERY old rule of thumb, the PEG ratio is worth a gander.
A P/E around 12 looks not so shabby with EPS growth estimates numerically bigger, in the 13-14%/year range.
(trailing 10 years EPS growth 17.5%/year)
This isn’t a screaming “buy now” tip.
But maybe take it as a suggestion to learn more about the firm and/or keep an eye on the price fall.
Or dabble, if that’s the way you roll.
Not that it means all that much, but Value Line’s 3-5 year price target is $75-110.
Those are not usually particularly good as a forecasts, but often capture the consensus of “the market” quite well.
From today’s price, the most optimistic scenario would be $110 in 3 years, or 33%/year compounded.
The most pessimistic scenario would be $75 in 5 years, or 10%/year compounded.
Middle of the pack around 18%/year for four years.
Nice balance sheet, and debt has come down a lot in the last few years.
Shrinking share count.
Nasty Covid hit in 2020 to revenues as you might expect, but (a) EPS rose(!), and (b) the revenue rebound is going well.
I think the only story against them is that electric vehicles have no parts so their business will no longer be needed.
I’m not that convinced.
Jim
no position lately, though I’ve done well on it in the past
Thanks for the tip, Jim. With an expected EPS of $5.15 between 2024-2026 (per valueline), it certainly and resoundingly meets the criterion of 10 x EPS 5 to 10 years out.
Even if one chops off a percentage of the expected EPS for the reason you mentioned (say, 20%), it may still end up being a decent investment (as you seem to imply as well).
In terms of boring old trailing P/E, other than a week or two during the pandemic bottom I think it’s about the cheapest it has been in about 20 years.
Boring old P/E isn’t so crazy as a yardstick, as their earnings tend to chug upwards pretty steadily most years.
And EPS rose about 17.5%/year compounded in the last 10 years. (cash flow per share and sales per share even faster)
A dividend yield of 2.2% if you like that sort of thing. Current run-rate earnings yield maybe 8.75%.
It’s only of interest if you like car parts, of course. Or money.
Not that it means a whole lot, but Value Line’s 3-5 year target range is $80-120.
If those figures were to be achieved in 4 years, that’s 16-28%/year compounded for a few years.
Plus dividend yield, minus inflation.
Admittedly, earnings per share have really soared lately, so some small fraction of that might not be sustainable.
I’d pencil in a flat year, maybe a pinch more, in terms of the bottom line.
Not that I have any deep insight into the near future, it’s just for conservatism.
Admittedly, earnings per share have really soared lately, so some small fraction of that might not be sustainable.
I think this is the biggest issue - profit margins had been in the 5% range; and then jumped to 8% last year. Did their long term business model change significantly or was this transient pricing power? I would probably hair-cut the valuation to say $2.25 per share; which puts them at a 20x multiplier.
I think this is the biggest issue - profit margins had been in the 5% range; and then jumped to 8% last year. Did their long term business model change significantly or was this transient pricing power? I would probably hair-cut the valuation to say $2.25 per share; which puts them at a 20x multiplier.
I think a drop that big might be a bit dire.
They’re coming off a great year so comparisons will be tough.
But they’ve allegedly been working hard to control costs, and revenues are still expected to rise modestly.
My thinking is more along the lines of a roughly flat spot in earnings for 12-18 months, though I’m still looking at some of the moving parts.
Some of the transient effects are good, others are bad, some were good but are now ending.
Of course, from the point of view of share price, a flat spot in earnings is often enough to ensure a trip to the discount bin.