Why this fund manager is overweight Carsales shares

Carsales.com Ltd (ASX: CAR): Buy, hold, sell?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

On April 1 2010 the Carsales.com Ltd (ASX: CAR) share price closed at $5.22 and it trades for $13 today to deliver investors some reasonable total returns when you consider it has also paid some healthy dividends over the past 9 years.

In fact over fiscal 2018 alone it paid 44.2 cents per share in dividends alone, plus full franking credits to investors.

Carsales also possesses a strong market position in Australia in that it only has a couple of competitors in the online automobile classifieds space as buyers and sellers are naturally drawn to the website that has the most cars for sale.

This phenomenon is known as a 'network effect' that also benefits the likes of online websites SEEK Limited (ASX: SEK) and REA Group Limited (ASX: REA).

In its end of February 2019 portfolio update professional fund manger Yarra Capital Management also revealed that it is retaining an 'overweight' rating on Carsales shares.

On its position the fund manager wrote: "We continue to see CAR's valuation – at a forward P/E of 22.1 times – as supportive when considering the company's outlook for long term earnings growth, its conservative accounting (with low capitalisation of research and development investment) and its undervalued international businesses."

The Carsales valuation came off the boil after its February 13 2019 interim profit report came in lower-than-expected and saw the stock close at just $11.52, however, since then it has steadily climbed to hit a multi-month high of $13 this afternoon.

As such a window of opportunity to snap up Carsales shares at a discount over the last two months may have come to a close.

However, if you take a long-term view and believe Carsales has a sustainable competitive position and pricing power despite rising competition from the likes of Facebook's Marketplace then the stock may still offer good value.

Motley Fool contributor Tom Richardson owns shares of Facebook, REA Group Limited and SEEK Limited. The Motley Fool Australia has recommended carsales.com Limited, REA Group 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 Scott Phillips.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »