Group 1 (GPI) is Going Strong on the Bourses: Tempted to Cash Out?
Group 1 Automotive GPI had a rollercoaster run on the bourses in 2020 with its shares recording a steep plunge in the first half and impressive gains in the second. The stock tanked 34% during the first six months of the year amid the coronavirus woes.
This auto dealership was heavily impacted by coronavirus-led restrictions, sagging showroom traffic and sluggish demand for vehicles. However, things have started looking up since the latter half of the year as restrictions began to be eased and customers opted for personal mobility against public transport amid the socially-distant milieu.
With rising demand for cars, Group 1’s sales and revenues started picking up the pace. The stock has rebounded sharply over the past six months with its shares skyrocketing around 132%. As the stock is currently hovering around its 52-week high range, it will not be very prudent to sell it in haste. The auto retailer, which currently carries a Zacks Rank #3 (Hold), still has more room to run. Therefore, it will pay off to retain the stock in your portfolio for the long haul. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s take a look at the factors driving the stock. For starters, the auto retailer’s diversified product mix and multiple streams of income reduce its risk profile. The company generates income from businesses including used and new vehicle retail, finance, insurance, as well as automotive repair and maintenance. Especially, the Service & Parts segment (which is the highest contributor to the firm’s total gross profit) is much less cyclic in nature and provides a buffer against any economic downturn.
Group 1 boasts a well-differentiated brand portfolio with Ford F, Toyota TM, Honda HMC and a few other legacy automakers accounting for the bulk of total new vehicle unit sales of the auto retailer. Optimism surrounding the vaccination drive and $900 billion worth stimulus package are likely to lift the economy of the nation, thereby improving the prospects of Group 1, which belongs to a highly cyclic industry.
Group 1’s acquisition of dealerships and franchises to expand and enrich its portfolio offer growth visibility. Notably, the company currently owns around 185 automotive dealerships, 241 franchises and 49 collision centers. Importantly, management expressed its intention to enhance the company’s business scale through strategic buyouts, both in the United States and overseas.
Ramp-up of e-commerce activities in response to the pandemic is proved beneficial. The firm’s omnichannel efforts bode well as the COVID situation indeed changed the way people purchase cars. The AcceleRide platform, which is the company’s online retailing initiative and active at all the firm’s U.S. dealerships, is likely to aid Group 1’s long-term prospects.
Compelled by the coronavirus-caused uncertainties, Group 1 initiated a series of cost-saving measures throughout the enterprise including staffing adjustments and marketing cost management. Its cost control across all its end markets seems to yield results. In the last reported quarter, the company achieved SG&A expenses as a percentage of gross profit, which was below 60% for the first time in its history.
Amid the steep recovery in car sales and services, the company resumed its share repurchase program and announced a new $200-million stock buyback program in October 2020. It also reinstated its dividend in November.
In light of the following tailwinds, it is advisable to keep the stock in your portfolio for more upside potential. Boasting an attractive VGM Score of A,the company has a long-term expected EPS growth rate of 7.9%. The Zacks Consensus Estimate for 2021 sales indicatesyear-over-year growth of more than 7%. The consensus estimate for 2021 earnings has moved 10 cents north to $17.91 a share in the past 30 days.
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