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Is the Carsales share price a buy?

The Carsales.Com Ltd (ASX: CAR) share price has been on an upward trend since hitting a 52-week low in December of $10.56 and is currently trading around $12.94 at the time of writing.

So is the Carsales share price a buy on current levels?

Carsales.com was founded in 1997 in Melbourne and has expanded rapidly since then, floating on the ASX in 2009. Carsales operates its flagship website carsales.com.au (obviously) but also owns bikesales.com.au, trucksales.com.au, boatsales.com.au and caravancampingsales.com.au amongst others.

The company has leveraged this broad network of websites to become the market leader in automotive classifieds in Australia (Carsales boasts that consumers spend almost twice as much time on its platforms than its competitors).

Whilst the company originally focused primarily on cars in Australia, it has expanded deeper (see above) and wider in the vehicle sales and rental industry in recent years, with a large and growing international presence outside its core Australian market.

Slick and innovative marketing campaigns, ranging from promoting its ‘Car of the Year’ Award for new cars entering the market to sponsoring sports like AFL, cricket, NRL (including State of Origin) and Formula 1 star Daniel Riccardo have boosted the company’s profile significantly across different sectors of the auto industry.

Furthermore, Carsales now has a significant presence in Brazil, Chile, South Korea, Mexico, China and Malaysia. International expansion has proved a highly successful strategy so far – Carsales has almost 230,000 cars listed in Australia but over 560,000 in Latin America alone and a further 400,000 in Brazil. The company plans on continuing this aggressive expansion across more countries in the coming years.

Much like property giant REA Group Ltd (ASX: REA), Carsales has managed to find and leverage a niche in the booming online advertising industry that US-based giants Alphabet Inc. (NASDAQ: GOOG) and Facebook, Inc. (NASDAQ: FB) have so far ignored. This has proved very successful with the company now boasting a market capitalisation of over $3 billion.

Foolish Takeaway

With shares trading around a P/E ratio of 17 (which is just over the average for the total market), the Carsales share price is looking relatively cheap in my opinion, considering the company managed to grow revenue to $444 million in the 2018 financial year, which is a 20% increase from the previous year. The company is also paying a decent 3.41% dividend yield, which looks very stable considering the company’s revenue numbers.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited and REA Group 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.

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