How the rising Aussie dollar could drive the Carsales share price to new all-time highs

The Aussie dollar has gained 30% against the greenback since March. Here's why the Carsales share price could surge.

| More on:
rising asx share price represented by miniature cars driving along an upward pointing arrow

Image source: Getty Images

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

The Carsales.Com Ltd (ASX: CAR) share price hit a new record high of $21.23 last Monday, 24 August. The price has since retraced a bit, down 3% from the high. But that still leaves Carsales shareholders up a tidy 23% year-to-date.

Like most every share on the S&P/ASX 200 Index (ASX: XJO), Carsales shares were savaged during the COVID-19 panic selling, falling 45% from 12 February through 23 March.

Since the March low, the Carsales share price has gained 97%. In comparison, the ASX 200 has gained 31% over that same time.

What does Carsales do?

Carsales.Com is Australia's largest online automotive, motorcycle and marine classifieds business. The company also has operations and interests in a range of different automotive classifieds websites in countries across Asia and South America, making it one of the largest digital automotive advertising businesses in the world.

Together with its subsidiaries, Carsales employs more than 600 people in Australia to develop leading technology and advertising solutions that drive its business around the world.

Carsales shares first began trading on the ASX in 2009.

Why the Carsales share price could head for new record highs

The company's full 2020 financial year results, released on 19 August, helped drive the Carsales share price to new record highs. Despite headwinds thrown up by the coronavirus, the company managed to increase its underlying revenue by 1% from the previous year. Net profit after tax (NPAT) also increased 6% to reach $138 million.

So, with its share price recently hitting new records, why could Carsales be heading even higher?

Aside from its proven business model and a likely consumer spending spree once the economy begins to recover from COVID shutdowns, I believe the rapidly strengthening Aussie dollar will see a marked increase in future revenue.

As recently as 19 March, the Australian dollar was worth 57 US cents. Today it's worth just shy of 74 US cents. And leading economists are tipping this to head towards 80 US cents over the next year.

Now predicting currency movements is notoriously difficult. But with the US Federal Reserve indicating it's happy to see inflation run over its previous 2% target figure, I believe these economists have it right.

With a strong Aussie dollar, the price of imported cars – and most all our cars are imported – falls. That should encourage more people to buy new cars, which will in turn see more used cars sold on Carsales.

And that should translate to higher Carsales share prices ahead.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com 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 Market News

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 »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

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 »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

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 boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »