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American’s Car-Mart Accelerates Growth In Tight Market

When I last reported on American’s Car-Mart (NASDAQ:CRMT) the company had just released its FQ1/Calendar Q2 earnings report. In it, the company demonstrated not only its position within the booming used-car market but a healthy balance sheet and outlook for growth. Now, three months later, the FQ2/Calendar Q3 report not only backs up what I saw then but points to further gains in the quarters to come. With shares trading below the pre-pandemic high and business growing at double-digit’s YOY it looks like this stock could post high-double-digit gains over the next year.

“Our disciplined execution and ongoing focus are propelling the business forward at an accelerating pace. At the same time, significant investments in key areas are laying the groundwork for future growth. Notwithstanding the tight used vehicle market - especially at the lower price points - we generated a meaningful increase in revenues,” said Jeff Williams, President and CEO. “Our business continues to both generate cash and increased borrowing capacity while maintaining a conservative balance sheet, enabling us to think big about our place in the world."

America’s Car-Mart Had A Stunning Q3

America’s Car-Mart isn’t growing as fast as say Carvana (NASDAQ:CVNA) but there is a difference. Where Carvana is primarily an eCommerce outlet with a hint of brick&mortar America’s Car-Mart is more like Carmax (NYSE:KMX) and Sonic Automotive’s Echo Park (NYSE:SAH); a chain of physical stores with a heavy dose of eCommerce thrown in. Regardless, the company posted $223.36 million in net revenue for the quarter which is up from last quarter, up from last year, and better than expected.

In terms of growth, the revenue is up 18% from last quarter, 17.4% from last year, and growth accelerated from the previous quarter’s 9.3%. In terms of the analysts, revenue is nearly 700 basis points above the consensus, a consensus that has seen a noteworthy increase over the last three months. The strength was driven by a 15% increase in the average selling price that was offset by a slight decline in volume. The growth of average selling prices also accelerated from the previous quarter. Revenue was also aided by a $4.1 million increase in interest income.

On the bottom line, the GAAP earnings came in at $3.05 and $0.70 better than the consensus. This is noteworthy because the consensus for revenue and earrings increased nearly 50% over the past quarter and the company is still on track to beat it. The YTD total stands at $5.88 or 56% of the consensus. Just like last quarter, the company put the income to good use paying down debt, hoarding cash, and buying back shares while maintaining a healthy balance sheet.

“Our cash balance is $19.5 million and our debt, net of cash, to finance receivable is 28%. During the quarter, we added $49.4 million in receivables, increased inventory by $11.2 million, funded $2.2 million in net capital expenditures, and repurchased $6.1 million of our common stock, a total of $68.9 million utilizing $31.1 million of cash and no increase in debt. We will continue to stay focused on a strong balance sheet and cash flows while ensuring we are investing with an eye for the future,” added Ms. Judy.

America’s Car-Mart Is A Value Growing By Double Digits

America’s Car-Mart also offers a value proposition as do most of the after-market car dealers today. The industry leader is Carmax trading at 23X this year’s and 17X next year’s earnings. America’s Car-Mart is trading closer to 10X this year and 9X next year (as are most other automobile retailers) with a much more-robust growth prospect.

The Q2 news has shares of America’s Car-Mart up a little more than 1.0% in the early pre-market session. Price action is set to at least retest resistance at the $110 level and there is a good chance it will break out to new highs. Looking at the weekly chart, shares of CRMT are in consolidation within a bullish uptrend and may gain as much as $50 or 50% upon a break to new highs. My $150 price target is only a little bit above the consensus of $134, a consensus that I think will soon start rising again.