Shares in online marketplace Carsales.com Ltd (ASX: CAR) are up more than 30% this year. For a variety of reasons, I recommend taking profits.
Firstly, although Carsales focused on 13% growth in revenue at its last results, that excludes Finance and Related Services.
In my view, it’s one thing to exclude discontinued operations, but quite another to downplay continuing business just because it happens to have done badly! Add them back, and net profit after tax was actually flat at $109m.
That leads onto a second issue that bothers me, namely that $9.2m of labour costs associated with technology development have been capitalised. That’s up 11% on the previous year too. I would prefer to see costs such as these expensed, especially as they are likely to be recurring.
Thirdly, there is a long way to go for the group’s international operations, primarily in Latin America, to turn a meaningful profit. In fact, international recorded a small loss in the year. In addition, Carsales took a $7.1m write down on its investment in ICar Asia.
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