Investors are increasingly bullish on automotive retailer stocks as the stock market today struggles to find a direction. The novel coronavirus is creating an unusual side-effect, whereby prices of used cars have gone up. Don’t understand why? Let’s connect the dots.
During the outbreak of the COVID-19 pandemic, there are people who still had to commute to jobs. But instead of taking public transportation and ride-sharing services, people are turning to used cars. Of course, some investors knew that too. As a result, investors have been bidding up some of the top automotive retailer stocks in the market.COVID-19 A Blessing In Disguise For Automotive Retailers
The automotive retailer market is showing healthy signs of growth and is unlikely to stall anytime soon. And even as parts of the country reopens, it seems like people are still not very comfortable to return to public transportation. I don’t blame them though. After all, the U.S. still has the highest infection numbers and our fight against the insidious coronavirus is far from over. Despite better treatment options and vaccines coming from Pfizer (PFE Stock Report) and BioNTech (BNTX Stock Report), it will take months if not years for us to completely eradicate the virus.
Of course, cars are notable for how quickly they depreciate once you drive it off the dealership. But the average value of used cars went the opposite direction instead. With the unprecedented demand for used cars, it shouldn’t come as a surprise. Higher demand leads to higher prices, after all. Now you might be wondering if it’s too late to buy these automotive retail stocks now. Well, I can’t speak for everyone. But with the uncertain economic climate, used cars appear to be more attractive than new cars at this stage. That said, are any of these best automotive retailer stocks hitting your watchlist this week?
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While AutoNation (AN Stock Report) is the largest car retailer in the U.S. market, It is Carvana (CVNA Stock Report) that grabbed the spotlight this year. Don’t get me wrong though, both Autonation and Carvana are performing equally well in terms of stock price appreciation this year. It’s just that the markets have become increasingly volatile. And many investors are looking for a bit more stability. Carvana just seems to fit the bill as a clear winner in the automotive retailing market.
Shares of Carvana made a huge jump on Tuesday, up more than 30.61% as of Tuesday’s closing. This came after the company issued an exciting business update for the upcoming third quarter of 2020.
In addition, the company announced a senior note offering totaling $1 billion, which would shore up its cash position. Carvana is dubbed as the Amazon (AMZN Stock Report) of the online used car industry. The company is a fast-growing e-commerce platform for buying and selling used cars.Carvana Stock Is Soaring Because Of Strong Online Used-Car Sales
There are many reasons to like Carvana. The company is a pioneer in online car retailing. From this year’s second quarter results, Carvana recorded a 13% increase in revenue year over year. Meanwhile, vehicle sales rose 25%.
Management believes the pandemic will drive more customers to its e-commerce platform. If this plays out, it would accelerate the growth of Carvana’s business model in the long term. We seem to be moving in this direction as the days go by.
Granted, Carvana is still far from profitability. But it is a relief that gross margins have been improving. The new financing will strengthen the company’s ability to fund growth. All these bode well for investors holding CVNA stock for the long term.Top Automotive Retailer Stocks To Watch In September: CarMax
Investors were not expecting to hear much good news from CarMax’s (KMX Stock Report) previous quarterly earnings report. That’s understandable because the period covers March to May. That’s when COVID-19 was in full force. But investors were happy to learn that CarMax achieved steady profitability while cutting its inventory shortly after.
While there hasn’t been any specific news that drives the stock higher this week, it could simply be a spill-over effect from positive remarks by Carvana on the booming demand for used cars. In any case, KMX stock remains interesting to watch this week. The company expects to announce the second-quarter results at the end of this month.
CarMax has gone a long way in reducing its inventory of cars, moving more of the wholesale and consumer businesses to its digital sales channels, and simultaneously slashing costs for the company. More importantly, the positive demand should support a quick rebound for KMX stock. Investors appear to be expecting the company’s second-quarter sales to be down by just 3%. That compares favorably to the 40% slump in the previous quarter. But who knows? Could CarMax see a positive quarter sales growth? Well, we will find out when the time comes.