Should You Buy ASX:CAR at This Price?

What happened to the CAR share price?

Carsaless.Com Ltd [ASX:CAR] was trading relatively flat by afternoon trading today. By 3:25pm, the stock was down marginally by 0.12%.

After a solid 20% gain over the last six months, CAR continues to be a favourite among momentum investors. But with a much more expensive valuation than before, the market consensus on the stock is now a ‘Hold’.

Why did CAR shares do this?

CAR’s value creation has been driven by sales growth and earnings expansion. Those have been driven by the company’s global strategy, particularly in emerging markets. Carsales.Com Ltd is leveraging on its successful model in Australia and creating subsidiaries in countries such as Korea and Brazil.

It is true that emerging markets have been going through a tough period since last year. However, investors need to know that the real fundamental growth story of emerging market is still an appealing one over time. Emerging markets will still be driving global growth more than developed countries in the years to come. From that angle, what CAR is doing is correct for the long term.

Recently, market excitement has been heating up over the potential for to take over the Asia-market-focused iCar Asia Ltd [ASX:ICQ]. Again, investors should understand very clearly the expansion plan of CAR. It means to expand its long term value geographically. Investors should feel confident with a company that has a clear plan; an expansion into markets where car penetration is still low is a good logical choice, which will lead to bigger markets and growing sales.

What now for CAR?

The market recognises CAR’s management vision and its future plans. That is why the share price of CAR has been gaining. I believe the company is well on its way to generating positive sales growth and earnings growth in 2016 and 2017. However, I think the market has been pricing in that momentum for some time.

I do believe the stock still has more to offer for medium to long term investors. However, you will want to keep an eye on its emerging market and Asia expansion plans. The success of those plans will have a meaningful impact on the price of the stock in the short term.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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