Bear of the Day: Americas CarMart (CRMT)
Wait for the next catalyst or this auto dealer.
America’s Car-Mart (CRMT) is a Zacks Rank #5 (Strong Sell) that operates automotive dealerships and is one of the largest auto retailers in the United States.
The stock has benefitted all year as the used car market was hot due to higher prices on short supply. However, that dynamic might be hurting the industry now. After the company reported earnings, the stock has pulled back significantly and is now off 33% from 2021 highs.
More about CRMT
America’s Car-Mart was founded in 1981 and is headquartered in Rogers, Arkansas. As of April 30, 2021, it operated 151 dealerships in the South-Central United States. CRMT employs 2000 people and has a market cap of $800 million.
The Company operates its dealerships primarily in small cities and rural locations throughout the South-Central United States. They focus on customers that may not qualify for traditional used car financing because of bad credit history.
The stock has a Zacks Style Score of “B” in Value. However, the stock is rated “F” in both Growth and Momentum.
In August, the company reported a Q1 EPS beat of half a percent. Revenue came in above expectations and same store revenue growth was up 46.7% v 5.5% last year.
At first glance the numbers look fine, but while the market was expecting the number that was reported, investors were used to the company blowing out numbers. For the quarter reported in May, the company saw a 130% EPS beat, so when EPS came in as expected, investors were a bit disappointed.
Additionally, the company saw margins compressed more than expected. This is due to the tight used car market as inventory’s remain low.
While the sales numbers aren’t bad, investors are worried about the used car market. What used to be a tailwind in rising prices is now a headwind in low supply. The stock dropped from $160, to $130 in one day, a drop of almost 20%.
Over the last 60 days, analysts have consistently taken down their numbers. For the current quarter, estimates have fallen 7%, from $3.68 to $3.41. For the current year, numbers have fallen by 6%.
Before earnings, CRMT had a great looking chart. However, the stock saw no support at the 200-day moving average. While the stock is down only slightly from the post-earnings lows, there seems to be no life. Investors likely have to wait for the next catalyst to get some movement either way.
For those that might want to buy the dip, the $90 level is the 61.8% Fib retracement drawn from the COVID lows to all-time highs.
CRMT has had a major setback with investors, causing the stock to fall in similar fashion to the COVID crash. Until the supply/demand dynamic of the used car market normalizes, investors are best looking somewhere else.
For those interested in the auto retail space, AutoNation (AN) might be a better bet. This company is seeing estimates trend higher for the current year and is a Zacks Rank #1 (Strong Buy).
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