Investors Do Not Want to Miss Out on This Auto Stock

The equity sports attractively priced premiums at the moment

Jan 6, 2022 at 2:55 PM

Automotive retailer Asbury Automotive Group, Inc. (NYSE:ABG) is up 1.8% to trade at $175.12 this afternoon, brushing off a price-target cut from BofA Global Research to $345 from $354. Though the equity has had a volatile past 12 months, it did hit an Oct. 22 all-time high of $230.50. More recently, shares overcame pressure from the 40-day moving average to find a new floor at the $172 mark. Year-over-year, ABG is up 10.5%.

ABG 40 Day

Despite today's bear note, the brokerage bunch is optimistic towards the equity. Of the eight analysts in question, five call it a "strong buy," while three say "hold." Plus, the 12-month consensus target price of $248.13 is a 40.9% premium to the security's current levels.

Short sellers are already running for the exits. Short interest dipped 10.7% in the last two reporting periods, but the 1.31 million shares sold short still make up 5.7% of the stock's available float.

Now looks like a great opportunity to bet on ABG's next move with options. The equity sports a Schaeffer's Volatility Index (SVI) of 37%, which stands in the 12th percentile of readings from the past 12 months. This indicates options traders' volatility expectations aren't high at the moment.

It is also worth noting that Asbury Automotive Group just acquired Larry H. Miller Dealerships and Total Care Auto on Dec. 17, adding 54 new and seven used vehicle dealerships, as well as 11 collision centers, a used vehicle wholesale business, and an F&I product provider. The acquisition will add approximately $5.7 billion in annualized revenues for the company.

Asbury also acquired a total of $6.6 billion in annualized revenue in 2021, achieving its five-year target of $5 billion in acquired revenue during the first year of its strategic plan. Moreover, the company's revenues and net income added 37% and 186%, respectively, since 2018.

Overall, Asbury stock has an attractive valuation, with a price-earnings ratio of 7.08, and a price-sales ratio of 0.36.The biggest fundamental issue is with its balance sheet, which holds $330.6 million in cash, and $2.16 billion in total debt. Still, Asbury stock offers great potential as a value play, with decent growth ahead.

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