Nothing But Good News For America’s Car-Mart (NASDAQ:CRMT)

 Wholesales Prices Are Rising, But So What?

There has been nothing but good news coming out of the used-car industry of late. The pandemic put a hurting on business for a month or so but since then the rebound has been vigorous. Retailers from Carmax (NYSE:KMX) to Autonation (NYSE:AN), Vroom (NYSE:VRM) to Carvana,(NYSE:CVNA) and O’Reilly Auto Parts (NASDAQ:ORLY) to Advance Auto Parts (NYSE:AAP) are reporting strong numbers driven by secular trends.

Toppling the list of positive impacts on the used car market is the price. The price of an after-market car, even accounting for recent price increases, is still far less than what you will pay for a new one. That's why it's no surprise that America's Car-Mart (NASDAQ:CRMT) just turned in a stellar report.

According to data from Manheim, all used-car segments saw sequential and YOY price increases in the first half of August. At face value that’s a little worrisome, rising wholesale prices will cut into the bottom lines for used car retailers, but in the end, it doesn’t matter. The uptick in pricing is due to demand and demand is strong. So long as the used-car retailers can make money (and they can) the outlook for their stocks is bullish.

America’s Car-Mart Fires On All Cylinders

America’s Car-Mart was expected to produce some decent numbers in the fiscal 1st quarter but not quite as good as it did. On the top line, revenue grew by 9.3% over the last year’s Q1 to top estimates by 500 basis points. The strength in revenue was driven by a 5.5% increase in comp sales that in turn was driven by higher prices.

The average monthly sales volume for the quarter was down, that’s the only negative I have to report, but there is a mitigating factor. Sales in the first month of the quarter were severely impacted by the pandemic but have since bounced back strongly. Offsetting that weakness is selling price, up 12.2% over the same time last year and expected to rise in the face of high demand. In fact, sales in the second two months were enough to produce a 2.8% increase in the number of units sold for the quarter, a metric that points to even stronger results in the current quarter.

On the bottom line, GAAP EPS came in at $2.83 or nearly $1.40 better than the consensus. The earnings strength is due to a combination of the selling price, the number of units sold, and the leveraging effect of cost-cutting the company did early on in the pandemic. Oh yeah, and collections and charge-offs both declined further padding the bottom-line results.

“Our results were strong with top-line growth up over 9%, net charge-offs down significantly and nice leveraging of our selling, general and administrative costs.”

The Outlook Is Good, And The Analysts Are Too Conservative

The outlook for American’s Car-Mart is good in fiscal 2021. The company is expected to produce both revenue and earnings growth for the year. Better yet, the consensus targets are too low which means that 1) the company will smash the estimates when it next reports and/or 2) that the analysts are going to begin upgrading the stock.

The current consensus for 2021 is EPS in the range of $7.00, only marginal growth from fiscal 2020, but the company is already on pace to soundly beat that target. The Q1 EPS and 2nd quarter consensus are equal to 65% of the full-year consensus. The company won’t even have to match last year’s results to beat the consensus and, with two new stores in operation and two more on the way, there is no reason to think business will be that bad. Far from it. If Congress can get another spending bill passed results may be far, far greater than even I imagine. I know that my own family is in the market for a new-to-us car and we’ll be buying it later this year.

The Technical Outlook: America’s Car-Mart Is Lagging The Market

America’s Car-Mart has made a fairly decent rebound from the March low. Fortunately for us, today, the stock has been lagging its peers and in a big way. Where America’s Car-Mart has failed to regain all the February and March losses competitors like Carmax, Carvana, Sonic Automotive, and Auto Nation are all trading well above the pre-COVID highs if not at new all-time highs. What I’m getting at is that America’s Car-Mart could be in for a big multiple expansion that could take share prices up 15% to 50% over the next two quarters.