AutoNation Near Buy Point After Surging 500%

AutoNation (AN), featured in today’s IBD 50 Stocks To Watch, is approaching a new buy point amid high demand for cars.


The Fort Lauderdale, Fla.-based company operates more than 300 car dealerships in the U.S. In its July earnings call, AutoNation said it’s been aggressively boosting its pre-owned inventory due to the limited supply of new cars.

On July 19, AutoNation reported Q2 adjusted earnings that surged 243% to $4.83 a share. That marked the car dealership operator’s fifth straight all-time record quarter, according to CEO Mike Jackson. Same-store sales jumped 54% to $7 billion from the same year-ago period.

“Strong vehicle demand” as consumers seek personal transport amid the Covid-19 pandemic “has led to faster inventory turnover, and consumers are buying vehicles before they even arrive at our stores,” Jackson said on the earnings call. “We expect the current environment of demand exceeding supply to continue into 2022.”

Stocks To Watch: Triple-Digit Growth

IBD Stock Checkup assigns AutoNation a 98 Composite Rating, which gives investors a quick way to assess a stock’s key growth traits. That puts it among the top stocks to watch in the 26-stock automotive retail group, which includes Penske Automotive Group (PAG) and Group 1 Automotive (GPI).

Last week, Penske and Group 1 topped buy points in a sign of industry strength. Group 1, however, is now below the 182.05 buy point.

A 94 Earnings Per Share Rating reflects a five-year compound earnings growth rate of 15%. Analysts expect AutoNation’s EPS to surge 112% this year, before a 10% slowdown in 2022. The car seller delivered triple-digit profit growth in three of the past four quarters. Sales growth, meantime, stepped up the past three quarters.

On the technical side, a 95 Relative Strength Rating places AutoNation in the top 5% of all stocks. The relative strength line, which compares a stock’s performance with that of the S&P 500, is close to a new high, a bullish sign.

Closing In On A Buy Point

AutoNation is shaping a cup base with a 125.31 buy point, according to MarketSmith chart analysis. It’s part of a base-on-base pattern, building on top of a nine-week consolidation cleared in mid-July. Though the stock was down in light trade Monday as the broader market sold off, volume ramped up during the previous three up sessions.

Note that the base is third stage, which carries a higher risk of failure. Shares rallied 79% this year through Aug. 2, outpacing the S&P 500’s 18% return at that time. AutoNation stock surged more than 500% from its March 2020 low.

Also keep an eye on the market. IBD downshifted its market outlook on Friday to “uptrend under pressure.” That means investors should consider locking in gains and buy only exceptional stocks that stage solid breakouts.

Follow Nancy Gondo on Twitter at @IBD_NGondo


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