Goldman Sachs says buy despite this ASX 200 stock trading at a record high

Let's find out why.

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This ASX 200 stock may have reached a record high today, but top broker Goldman Sachs says it's a buy.

The stock in question is automobile classifieds company Car Group Limited (ASX: CAR).

In earlier trading on Tuesday, the Car share price hit an all-time peak of $35.47.

But Goldman reckons the ASX 200 communications stock has further room for share price growth.

In a note published today, Goldman upgraded its rating on Car Group shares to buy and increased its 12-month share price target to $39.40.

Let's find out why.

Car Group shares hit record high share price today

There was no official news propelling the Car share price to a new all-time peak today.

But Goldman says it's upgraded its rating largely due to the company's 1H FY24 report last week.

The auto listings company reported a 60% jump in revenue to $531 million and a 34% increase in adjusted net profit after tax (NPAT) to $163 million.

Goldman said that following its US trip in late 2023 and Car Group's 1H FY24 result, it was "increasingly confident in the earnings momentum (both locally & globally)" for the auto listings business.

It pointed out that Car shares have already performed strongly. After all, the ASX 200 stock is up 56% in just 12 months.

But on a relative price-to-earnings (P/E) ratio basis, the broker said Car stock was trading at a discount to ASX 200 peers like Seek Ltd (ASX: SEK) in the Australian online classifieds arena.

Goldman said:

We are increasingly confident in CAR's ability to sustain double digit EBITDA growth. This follows … the 1H24 result in Feb-24, with CAR delivering strong growth across all key drivers, and materially stepped up investment into product/growth that will sustain its 'Good' earnings growth through the cycle ….

Goldman is now forecasting FY24 and FY25 EBITDA growth of 38% and 13% respectively for Car Group.

The broker said the ASX 200 stock's valuation "still screens reasonable".

Goldman commented:

Reflecting our increased confidence in CAR outlook, alongside peer re-rating, we have increased our CAR EV/EBITDA multiple to 25X (blended) from 23X, which combined with the earnings upgrade drives our 12m TP to $39.40.

That 12-month share price target for Car implies a potential upside of 11.1% over today's record high.

ASX 200 stock price snapshot

The Car Group share price has grown by 76% over the past three years while the ASX 200 grew 13%.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has recommended Car Group and Seek. 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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