Looking in more detail as to why the sell off of CarSales...I think it's all panic selling. The CEO mentioned subdued conditions, but this is a company who pays out 90% of profit as dividends and still has a sustainable growth rate of 5% (due to a ROE of over 50%!). Even the ROA is pretty impressive (34%) Easily making the cost of equity of 10.5% over the last two years.
As for growth, car sales are a pretty good model as they are linked to economic growth but a site like this also links to the secondary market (used cars) which does better when times are tough. A bit of exposure to underdeveloped car markets like Brazil and Thailand completes the picture.
Sure, the model isn't exactly competition free. Lots of potential competitors out there, but with a good, experienenced board well versed in car sales and dealerships, I think this is still a business with potential.
In fact, if I do my calculation of FCFE using the gordon growth model, I have a price target of $12.69. As the shares are trading at around 10.33, this represents an 18% discount.
But I could be wrong again.
Disclaimer : Not an recommendation to invest/not invest in CarSales. Please see your financial advisor.
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