KAR is also investing heavily in the TradeRev technology platform.
The stock is significantly undervalued based on comparison with peer multiples.
KAR Auction Services Inc is not a well-known stock to most investors. But it is the No. 2 player in the wholesale used vehicle market. The company recently completed a spin-off of the insurance salvage auto business making it a more focused business on the wholesale used vehicle market. Spinoffs generally unlock value for shareholders. But with that said, this is a company in transition as it adapts its business model. Currently, the company’s cost structure and thus operating expenses are too high compared to before the spinoff. Second, gross margins are also under pressure since KAR added to the top line through a series of bolt-on acquisitions before the spinoff. Furthermore, KAR is investing to grow the TradeRev technology platform, but this is also pressuring margins as TradeRev is operating at a loss. But if KAR is successful in improving margins and TradeRev takes off then there is likely significant upside for the stock. With that said, this stock is probably best suited for special situation parts of a stock portfolio. I view KAR as a buy.
KAR Auction Services recently completed the spinoff of the IAA Salvage business. The remaining company was rebranded as KAR Global. The company provides services to connect sellers and buyers in the wholesale used vehicle market. The sellers are often car dealers, commercial fleets, financial institutions, manufacturers, and rental car companies. The cars being sold are generally trade-ins (50% of volume), ones coming off leases (25% of volume) repossessions (15% of volume), and fleet sales (10% of volume). Buyers are often independent dealers in the used car market. KAR operates globally in 70+ countries in North America, Europe, and Mexico.
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