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With Used Car Prices Hitting All-Time Highs, is Now a Good Time to Buy KAR Auction Services?

Published 12/07/2021, 08:47 AM
Updated 12/07/2021, 09:31 AM
© Reuters.  With Used Car Prices Hitting All-Time Highs, is Now a Good Time to Buy KAR Auction Services?

© Reuters. With Used Car Prices Hitting All-Time Highs, is Now a Good Time to Buy KAR Auction Services?

The average list price for used vehicles has reached an all-time high, driven by high demand and low inventory. And KAR Auction Services’ (KAR) shares have gained 13.8% in price over the past month. However, the company’s financial growth has been sluggish. Furthermore, considering KAR’s lean profit margins, will it be profitable to bet on the stock now? Keep reading to learn our view.KAR Auction Services, Inc. (KAR) in Carmel, Ind., provides used vehicle auctions and related vehicle remarketing services for the automotive industry in the United States, Europe, Canada, Mexico, and the United Kingdom. KAR shares have slumped 8.7% in price over the past year and 10.6% year-to-date to close yesterday’s trading session at $16.13. The stock is currently trading above its 50-day moving average but slightly below its 200-day moving average.

Wholesale prices for used cars and trucks, a leading indicator of consumer used-vehicle prices, are at sky-high levels due to the high demand amid low supply. “The average price of a vehicle sold at physical auctions is now more than $5,000 higher than this same time in pre-pandemic 2019,” said Tom Kontos, chief economist for KAR Global, which is based in Carmel, Ind. Due to the pandemic-related lockdowns and a global semiconductor chip shortage, automakers have been compelled to cut their production. The new-vehicle shortage is further driving the demand for used cars. The average list price for used vehicles hit a record $26,971 in October, up 25% year-over-year and 38% compared to 2019 pre-pandemic levels. KAR shares have gained 13.8% in price over the past month.

However, the company’s fundamentals look sluggish. KAR reported $532.20 million of total revenue in its fiscal third quarter, indicating a 10% decline year-over-year. On its bottom line, its adjusted net income came in at $11.80 million, compared to $58.50 million in the same period last year. And its adjusted net income per share was $0.08, which missed the $0.10 consensus estimate by 20%. This also represents a $0.45 decline from its year-ago value.

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