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Is the Carsales (ASX:CAR) share price a good buy?

Carsales.com is facing massive changes in laws and consumer behaviour but is the Carsales share price a good, long-term buy right now?
The post Is the Carsales (ASX:CAR) share price a good buy? appeared first on Motley Fool Australia. –

carsales share price represented by cartoon of man driving along rising arrow in a car

Carsales.Com Ltd (ASX: CAR) is easily the premier platform for selling both used and new cars. In fact, over the past year, it has increased its lead over its competitors in several key metrics, which I believe, has helped make the Carsales share price a good buy right now. For example, according to the company’s FY20 report, Carsales has 2.15 times more daily unique visitors than its nearest competitor. Furthermore, the monthly average time on site is twice that of its nearest competitor. 

Carsales share price tailwinds

Carsales.com markets and sells both new and used cars, with used cars being the larger segment. Right now, used car prices are approximately 25% higher than they were at this time last year. Meanwhile, new car sales are dwindling. This appears to be part of a global phenomenon stemming from a reluctance to take public transport due to the coronavirus. This trend may slow, but I do not expect it will reverse any time soon. 

While online real estate marketing company REA Group Limited (ASX: REA) has to compete with a growing field of top flight competitors, including Domain Holdings Australia Ltd (ASX: DHG), Carsales has no such competition. Moreover, the company saw international revenues increase by 13% in FY20, raising it to more than 24% of revenues. 

Lastly, and I think very importantly, car classifieds is an area likely to be impacted by responsible lending laws. Specifically because expanding a housing loan to include the purchase of a new or used car is not uncommon. 

So is this a good share to buy now?

Carsales has local dominance, growing international sales, and is operating in a market of growing demand for used cars. However, this alone doesn’t necessarily make the Carsales share price a good buy right now. The company has, however, delivered increases in its operating margin from 52% to 55% and, over the past decade managed to achieve an average return on equity of 46%.

Carsales is also not willing to rest on its laurels. In FY20, it has improved its technology platform considerably. For example, it is seeing strong take up of new video products. In addition, it has allowed dealers to integrate finance offerings with their car listings. 

Foolish takeaway

Although the current Carsales share price is selling at a reasonably high price-to-earnings (P/E) ratio of around 43, I believe this is a good share to buy now. COVID-19 is the main cause of high P/E values due to low FY20 earnings. Between the company’s performance and the future outlook, I think Carsales is a very good share to buy and hold for years to come. 

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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited and REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is the Carsales (ASX:CAR) share price a good buy? appeared first on Motley Fool Australia.

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