Carvana and Lithia Motors are both good examples of how auto dealerships are finding the most revenues, mainly through financing services and used car sales.
Beyond that, we like Lithia Motors because the stock is doing well and the fundamentals are solid. The company operates over 180 dealerships in 18 states across the country, through which it sells almost 30 brands of new and used cars and light trucks.
New vehicles make up just over half of sales, used cars about a quarter, and service, wholesale cars, insurance, etc., make up the balance. Lithia has differentiated itself from the competition by excelling in those higher margin used-car sales, which also feed into its parts and service business.
The bottom line is that revenue and EPS have been growing in the double digits, in part because of acquisitions, and the stock just broke out after a better-than-expected Q2 report last week.
Revenue was up 4.2% to $3.2 billion, while EPS of $2.95 beat by $0.13. Analysts liked the quarter, and with a strong balance sheet see Lithia snapping up more dealerships to keep the growth trend alive.
Lithia Motors peaked near $120 last March and was cut in half by December, but the stock’s advance this year has been both smooth and powerful. The shares recently surged on earnings, so if you want in, aim for dips.
Meanwhile, Carvana is revolutionizing the gigantic used car business ($760 billion) in the U.S. by selling online, providing not just better prices ($1,000 average savings per vehicle), but a ton of selection (more than 18,000 choices, gotten from auctions, off-lease and off-rental, etc.).
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