Currently, the global automotive industry is facing serious problems. Supply chain problems have caused a shortage of large-scale parts such as semiconductors, which is a major hindrance to the production of new cars.
It is an issue that is clouding the outlook for many auto retailers, but not all. The reduced vehicle output is falling into the hands of used specialist Motorpoint Group (LSE: MOTR).
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The price of used cars is skyrocketing due to the scarcity of new vehicles available. According to AA, prices are rising at an “unprecedented rate” and demand for near-new cars, a sector that Motorpoint specializes in, is particularly strong.
According to AA data, the price of the UK’s most popular used car jumped 57% between 2019 and now. The impact of the new car shortage on the used market could continue to boost Motorpoint’s sales for the time being. Mercedes-Benz CEO Ola Källenius recently said that production of new cars could continue until 2023 due to a shortage of semiconductors.
Sales are soaring
The strength of the used market is reflected in Motorpoint’s recent flow of market updates. In its latest statement in early October, the company said sales had surged 57% in the six months to September.
Like new car dealerships, Motorpoint was also hit by inventory shortages. However, the company has taken steps to address the issue and has expanded its core market for vehicles under three years old to include models up to four years old.
This recent strong deal helped Motorpoint’s share price rise in early October. However, the business has since returned and has lost all its profits. The retailer is now 18% more expensive than a year ago and believes the company’s stock price will rise again with the release of its semi-annual financial report on November 25th.
Growth share on my radar
The company’s current valuation leaves ample room for new profits. At a price of 342p per share, Motorpoint offers a price-to-earnings growth (PEG) ratio of 0.2. Below 1, UK stocks may be undervalued and investment theory applies.
Of course, buying Motorpoint stock is not without risk. Periods of significant inflationary pressures, as well as the risk of inventory shortages, could dampen sales as widespread consumer spending falls below costs.
In my opinion, these threats are more than reflected in the company’s ultra-low PEG ratio. I don’t like Motorpoint because of the bright outlook on used car prices. I like the excellent track record of sales growth that far outstrips sales in the broader market. And we are encouraged by our plans to continue expanding (I recently closed a deal on a new site in Milton Keynes).
City analysts believe Motorpoint’s revenue will increase by 86% and 45%, respectively, through March 2022 and March 2023. I think it could be one of the most attractive growth stocks.
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And the performance of this company is truly astonishing.
In 2019, $150 million was returned to shareholders through share buybacks and dividends.
We believe our financials are as solid as we have seen them.
Since 2016, annual revenue has increased by 31%. In March 2020, one of our senior directors LOADED UP at 25,000 shares, a position operating cash flow of 90,259 increased by 47%. (The operating profit margin is also rising every year!)
Simply put, we believe it to be a fantastic stupid growth option.
Moreover, it is worth noting today.
So don’t wait any longer.
Royston Wild has no position in any of the stocks mentioned. Motley Fool UK recommended Motorpoint. The views expressed about the companies mentioned in this article are those of the authors and may differ from the official recommendations provided by subscription services such as Share Advisor, Hidden Winners and Pro. Here, Motley Fool believes that taking into account a variety of insights can make you a better investor.
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