Lithia Motors, Inc. (Lad): A bull case theory

We met with a bullish thesis In Lithia Motors, Inc. (LAD) In ​​the replacement of Chit chat stocks. In this article, we will summarize the thesis of bulls on Lad. The Lithia Motors quota, Inc. (LAD) quoted at $ 295.94 from May 7^th. P/e of Lad P/E was 9.34 and 8.51 respectively according to Yahoo Finance.

A wide view of a large automobile dealership, its showroom full of different types of cars.

Lithia Motors is a quiet compound in the United States Automobile Concessionaire Space, having created a decades of decades of value creation of shareholders. As the largest car retailer in North America, with almost 500 locations and more than 50 vehicle brands in all the United States and Canada, Lithia has accumulated yields at 13.5% annually since its 1996 OIP, which had 9% of the S&P 500 in the same period. Despite its size, it only has a 1.5% market share in a sector with more than 17,000 dealerships, offering a long growth court through its proven deployment strategy. Lithia has developed relationships with many of these dealerships and, like constellation software, patiently awaits the right time to strike, taking advantage of the bases of possible sellers. The company’s acquisition model focuses on rural dealerships, which are often included with geographical exclusiveness due to the contractual restrictions of original team manufacturers (OEM), essentially giving local pits to Lithia with a minimal risk of direct competition. In addition, Lithia size allows you to centralize back-office operations, change the inventory through its footprint and mitigate the specific cyclicity of the brand thanks to its wide exposure to the brand.

Contrary to the popular assumption that vehicle sales promote the profitability of the dealership, Lithia generates about 65% of its gross benefit of high and recurring margin services such as parts, service and funding. This segment provides a pillow during economic slowdown when vehicle sales decrease, giving the business an integrated defensive feature. Acquisitions are made in multiple attractions, typically sales of 0.25x, translating to about 6x gains, given the operational margin of 4% lithia. This has led to consistent and strong returns of inverted capital and the robust growth of EPS. One of the main reasons why these returns have not been competed is that the dealership model is closed. The OEMs must approve the sale of a dealership, and Lithia has created a reputation as a value -added buyer that trusts the OEMs. They can show the test of better and efficiency after acquisition, giving them a competitive advantage over private capital or less experienced operators.