America’s Car-Mart, Inc. (NASDAQ:CRMT) operates 131 auto dealerships within ten states and is the largest publicly traded automotive dealership in the US, focused exclusively on the “Buy Here/Pay Here” segment of the used car market. Car-Mart operates dealerships primarily in small cities throughout the South-Central region of the country, selling quality used vehicles and providing financing for substantially all of its customers. The company has a market capitalization of $331 million and an average daily volume of 70,380 shares.
America’s Car-Mart not a traditional value play
Now, strictly speaking, America’s Car-Mart, Inc. (NASDAQ:CRMT) is not a traditional deep-value, or value play. Instead the company looks to be a good turnaround story, which will benefit from the US domestic economic recovery and strengthening used car market.
As already mentioned, America’s Car-Mart, Inc. (NASDAQ:CRMT) operates second hand auto dealerships throughout the US, as well as offering financing solutions to its customers. Unfortunately, the financing element of the company does pose slightly more risk than I would like, testament to this is the $0.52 per diluted share non-cash after tax charge the company was forced to take in the most recently reported quarter, as management increase financing loss provisions. Without this charge earnings would have been 325% higher for the quarter; it quickly becomes apparent that Car-Mart’s future growth is heavily dependent upon an economic recovery and rising consumer wealth. Nevertheless, aside from consumer finance, Car-Mart is set to benefit from the growth of used car sales as they return to pre-recession levels -currently expected to occur during 2014. And to some extent the strengthening second hand auto market is already having an effect on Car-Mart’s sales. Specifically, during the first nine months of Car-Mart’s financial year, revenues ticked higher by 8.1%, with same store revenue growth coming in at 1.8%. The company also reported a 6.7% year-on-year rise in the number of units sold from 29,970 to 31,986.
As revenues expanded at a higher rate than the number of units sold, there is an indication that unit prices increased year-on-year.
On the other hand, credit losses continue to weigh on Car-Mart’s outlook. Credit loss provisions came to 28% of sales during the first nine months of the company’s financial year, up from 23% in the comparable period the previous year. Additionally, net Charge-offs as a percentage of average finance receivables ticked up to 19.8% compared to 18.1% for the prior year.
Analysis presents a mixed bag
All in all then, Car-Mart presents a mixed picture: the company’s sales are slowing ticking higher but it would appear the financing side of the business is holding the company back. This being said, further analysis of the business show that during the past five years, income from Car-Mart’s financing division has actually kept the company afloat, while used car sales have dwindled. Even in the depths of the financial crisis, America’s Car-Mart, Inc. (NASDAQ:CRMT)’s financing income helped keep the company afloat and the allowance for credit losses never exceeded 22%.
With a steady income from financing contracts and loans to customers, America’s Car-Mart, Inc. (NASDAQ:CRMT) has a robust cash flow and is, for the most pert returning this cash to investors. During the past four years Car-Mart has returned $81 million to investors via stock repurchases, 67% of net income for the period.