Which Automotive E-Retailers Could be the Carvana of 2021?

While online shopping has fundamentally changed the majority of retailing markets, auto retailers have been somewhat slow in embracing the potential of digital commerce. However, the application of e-commerce in the auto industry got a major boost this year, thanks to the coronavirus outbreak. Amid the virus-induced lockdown, dealers sought […]

While online shopping has fundamentally changed the majority of retailing markets, auto retailers have been somewhat slow in embracing the potential of digital commerce. However, the application of e-commerce in the auto industry got a major boost this year, thanks to the coronavirus outbreak. Amid the virus-induced lockdown, dealers sought out alternative ways to connect with car shoppers to sail through these unprecedented times and socially-distant digital sales came squarely into focus.

Carvana: Top Auto Retail Stock of 2020

Carvana CVNA has had a blockbuster 2020, with its shares skyrocketing 172.5% so far this year, handily outperforming the industry and peers. The company’s compelling end-to-end online business model and trademark vending car machine are transforming the shopping experience of buyers and driving top-line growth. The firm’s revenues for the nine months ended Sep 30 were $3.76 billion, up 32.6% year over year. The Zacks Consensus Estimate for 2020 sales signals 35.7% growth from the 2019 level.

Carvana’s 90-day no loan payment promotion, contactless delivery service and more frequent marketing are also likely helping it boost sales amid the COVID-19 crisis. The company’s next-day delivery in many markets and a seven-day money-back guarantee to help ease concerns about online buying enhance customers’ faith and shopping experience. With a less expensive and zippy approach to selling cars, Carvana is well positioned to further expand the business in the coming years.

Digital Auto Sales Reinventing Retail, Prospects Bright

While the coronavirus pandemic has dented consumer confidence, people are still shopping for cars as people are avoiding public transportation and ride sharing options. Private transportation is viewed as the safest bet for both local and long-distance trips, thereby boosting demand. Easier credit conditions with super low auto loan interests are also boosting retail sales and making car sales more affordable.

Coronavirus-induced social distancing has prompted most consumers to stay away from physical dealership. Meanwhile, online traffic is on the rise, with auto dealers ramping up their digital capabilities to make deals with customers and arrange for home deliveries for vehicles. Increase in the usage of social media and chat tools is enabling dealers to seamlessly connect with shoppers in real-time. E-retailing, online financing and home delivery services are helping dealers generate sales amid these tough times. Importantly, among various COVID-induced trends, digital auto retailing is here to stay.

E-commerce and digital ramp up are fast emerging as the key to survival, as well as enabling effective customer engagement. Auto manufacturers are now keen to build direct relationships with customers and bypass expensive dealer networks. Online auto retailing holds massive opportunities and is likely to transform the automotive market in a big way in the coming years. Automakers’ race to invest vast sums in the e-commerce platform will gather steam and aid businesses to reach new heights, going forward.

Our Picks

Amid the encouraging digital auto retailing scenario, we have zeroed in on five stocks, which should be on your watchlist for handsome returns in 2020. 

TrueCar Inc. TRUE: Headquartered in California, TrueCar is a leading automotive digital marketplace. The firm’s omni-channel advertising campaigns are likely to improve customer shopping experience and drive traffic to its platform. TrueCar’s focus on creating a differentiated experience for car buyers, and initiatives like tech re-platforming and the launch of trade-in offering should allow the company to drive greater consumer adoption. The online car-shopping service provider currently holds a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for fiscal 2020 earnings points to year-over-year growth of 633.3%. The company has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AutoNation, Inc. AN: AutoNation continues to invest in digital capabilities that enable customers to buy and sell vehicles online, thereby providing them with a truly comprehensive and personal experience. Moreover, ship-to-home next day, curb-side pick-up option, and buying online & pick-up in stores options are picking pace, in turn driving additional traffic to the company’s online site. Enhanced digital solutions will help AutoNation to further boost profitability and market presence. In fact, omni-channel remains a key component of the company’s long-term strategy and is likely to boost revenues in the future. The Zacks Consensus Estimate for fiscal 2021 earnings implies a year-over-year rise of 6.6%. It currently carries a Zacks Rank #2 and has an expected EPS growth rate of 9.7% for the next three-five years.

Sonic Automotive, Inc. SAH: Sonic Automotive’s focus on bolstering digital capabilities is expected to bolster prospects. In response to coronavirus-led lockdown, the firm began offering a no-contact purchase experience, allowing 90% of a vehicle transaction to be completed on its website or by phone and delivered to the guest with a safe, no-contact home delivery. Strategic partnership with Cox Automotive and Darwin Automotive to develop a proprietary e-commerce platform and user interface bodes well for Sonic Automotive. This digital retailing partnership is expected to speed up the firm’s EchoPark expansion plans. The Zacks Consensus Estimate for fiscal 2021 earnings and sales implies a year-over-year rise of 14.9% and 16.8%, respectively. The company carries a Zacks Rank #2.

CarGurus, Inc. CARG: Headquartered in Cambridge, CarGurus provides an online platform for buying and selling used as well as new cars. The company uses proprietary technology, search algorithms and data analytics to provide information about a car to assist consumers in their purchasing decision. Balance sheet strength of the company bodes well. The firm’s focus on building a rich and positive user experience for car buyers, as well as delivering valuable sales is likely to boost its prospects. The Zacks Consensus Estimate for fiscal 2021 earnings implies a year-over-year rise of 6.3%. The company carries a Zacks Rank #3 (Hold) and has an expected EPS growth rate of 27.4% for the next three-five years.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AutoNation, Inc. (AN) : Free Stock Analysis Report
 
Sonic Automotive, Inc. (SAH) : Free Stock Analysis Report
 
TrueCar, Inc. (TRUE) : Free Stock Analysis Report
 
Carvana Co. (CVNA) : Free Stock Analysis Report
 
CarGurus, Inc. (CARG) : Free Stock Analysis Report
 
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