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Why I think it’s time to sell Carsales.com Ltd shares

The Carsales.Com Ltd (ASX: CAR) share price has been performing well recently, gaining more than 14 per cent since November.

In late November analysts were bullish on Carsales.com with Morgans retaining their buy rating and increasing the Carsales.com share price target to $14.99 while Ord Minnett analysts also lifted their price target to $14.39.

The optimism came as the company announced it had invested $244 million acquiring the remaining 50.1 per cent stake of South Korea’s Encar.com to become the outright owner.

The Carsales share price has since headed beyond those targets mentioned above with shares in the online advertising company trading for about $15.22.

And while analysts have been indicating that it’s time to buy Carsales.com one of the company’s directors has gone in the opposite direction.

Carsales.com this month announced that director Walter Piscotta had sold more than 2 million shares in the company for almost $34 million.

That adds to the more than $40 million worth of Carsales shares Mr Piscotta sold the year before and brings his total selloff in the past two years to more than $70 million.

Mr Piscotta, who recently sold shares for about $14.65 each, would have done even better if he held them a bit longer.

But it seems his sale was still well timed.

The Carsales.com share price has gained more than 40 per cent in the past year and outperformed expectations.

The company, with a market value of about $3.7 billion, reported an increase of revenue of 8.2 per cent for financial year (FY) 2017 on the previous year but profits only edged up by 0.2 per cent to $109 million for the same period.

And while its recent acquisition offered hope for analysts and investors, it perhaps should not be forgotten that the company recently incurred a $7.1 million write down on its investment in iCar Asia Ltd (ASX: ICQ).

Adding to these factors, Carsales shares are trading for around 33x earning as shares in fellow online advertising companies SEEK Limited (ASX: SEK) change hands for around 19x (adjusted) earnings.

As such, Carsales.com looks like a sell particularly given the range of better options available.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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