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Carsales.Com Ltd (ASX:CAR) vs Carvana Co: Better Buy

20 September 2018  |  Trading Ideas
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Carsales.Com Ltd (ASX: CAR) is Australia’s largest online marketplace for cars, automotive and marine advertising business and remains one of the best-loved stocks in the domestic share market.

This is not surprising given the consistent and positive performance of Carsales.

During the last reporting season, Carsales posted another impressive result with a net profit after tax of $131 million on revenue of $444 million. No wonder share investors are flocking to get hold of Carsales shares.

While Carsales’ revenue is currently driven by growth in the domestic market, the online marketplace company is generating steady performance from its international business. One of Carsales’ outstanding international performers is the South Korean-based SK Encar business which contributed $26.1 million in revenue and $13.8 million in EBITDA. The SK Encar business is responsible for over two-thirds of the international revenue of Carsales.

Given the company’s steady performance over the years and the fact that more consumers now rely on the Internet to search for everything they buy, from mobile phones to cars and boats, it looks like Carsales is set for further growth in the years to come. The company’s foray into the international market is definitely providing an additional boost to its rock-solid and market leading position in the Australian market.

But if you’re still looking for other potential growth stocks in the online car related marketplace, you may want to take a close look at Carvana Co (NYSE: CVNA), an online used-car dealership company in the US that is shaking up the American market.

Carvana: The Amazon of Car Buying

It’s been called the Amazon Inc (NASDAQ: AMZN) of car buying. Though it may still be too early to compare it with Jeff Bezos’ empire, Carvana – an online used car dealer company, shows a promising and positive trajectory.

During the last reporting season in the US, Carvana delivered strong second quarter results. Market analysts noted the company’s growth figures across many financial metrics have been positive compared to the previous year.

Carvana is A Young and Growing Company

Based in Tempe, Arizona, Carvana is a relatively young company. It was founded in November 2016 and only held its IPO in April 2017. Like other companies such as Uber and Airbnb that are heavy users of technology, Carvana is shaking up the online car dealership industry in America. And at the moment, investors seem to be valuing the company like an internet/technology stock.

Its core offering is a service that allows customers to shop, finance and trade in their cars using the company’s website.

Shaking The Car Dealership Industry

Though some analysts are quick to point out that Carvana is only a car dealer, the company has ambitious and new ways of making the car buying experience a bit more exciting than going to a traditional car dealership. On top of this, each car is subject to a rigorous 150 point inspection and is guaranteed to be accident-free with no prior frame damage.

Buyers of vehicles listed on Carvana have the option to collect their vehicle from one of Carvana’s signature car vending machines. Though it may currently sound unusual to get your next car from a vending machine, the novelty will help boost the profile of Carvana. Convenience is also a factor, with the company saying the whole pickup process can take as little as 10 minutes.

Here are some recent figures from Carvana that show its growth trajectory:

・The number of units (cars) sold increased by 111% compared to last year

・Total revenue was up 127%, for a total of $475.3 million

・Share price is up approximately 26.3% in the past month and 257.11% year-to-date

・Total gross profit jumped by 206%

Expanding Network

Some investors have noted that Carvana’s rise in revenues is no surprise. While based in Arizona, Carvana has gradually expanded its network and is now serving about 45% of the US population. It’s also worth noting that Carvana has recently launched its service in two significant population areas – New York and San Jose Bay Area

Used-Car Buying With Flair

Similar to Amazon’s online platform where you can buy almost anything these days, Carvana uses an e-commerce platform that allows customers to identify a vehicle and inspect it using a vehicle imaging technology. When satisfied with what they have seen, the customer can obtain financing and insurance cover, complete the purchase and schedule the delivery. All this can be done from a desktop or mobile device.

For buyers who are tired of the hassling and haggling from used-car salespeople, Carvana must seem like nirvana. The company’s transaction technology and customer matching algorithm is yet another example of the way that companies are using advanced technologies to deliver new ways of doing things to tech-savvy consumers.

A number of analysts have been quick to point out the possibility that Carvana’s growth may be too fast, too soon and may not be sustainable, investors are voting with their wallets and have been eagerly driving the share price higher.

Looking at the charts, Carvana’s share price shows a steady and gradual appreciation. While it was trading below US$20 as recently as March this year, it tested the US$31 region in April with a subsequent break above here in June seeing strong gains up to recent highs above $US70 in early September. Accompanying the solid gain in price over the past six months, there has been a steady increase in trading volumes as well. Technical analysts view this as a positive sign for the upward trend in price.

Outlook

Carvana is clearly on a strong and positive growth trajectory. For a service that delivers convenience and accessibility to time-poor consumers, it looks like this company is in for more expansion. As more consumers opt for technology-enabled companies, even the most mundane task like used car buying may get a lift, which will bode well for Carvana.

Similar to Carsales.com.au, which recently reported hefty profit figures, Carvana has many things going for it.




This article was written by Alex Douglas, Managing Director of Monex Securities Australia (AFSL: 363 972), part of the Monex Group Inc. and published by Rask Media (https://www.raskmedia.com.au) on 20/09/2018


The content of this article is given for general information only. As general information, no consideration or evaluation is given to the investment objectives or financial situation of any particular person. Trading and investing involve substantial financial risk. All readers of this article should make their own evaluation of the merits and suitability of any financial products and/or advice or seek specific personal advice as to the appropriateness of engaging in any activity referred to in this article in light of their own particular financial circumstances and objectives. 



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