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

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%.