Also, while KAR is still very much a North American play with all of its revenues coming from the U.S. and Canada, Copart, Inc. (NASDAQ:CPRT) ventured into the U.K. in 2007 and has recently expanded into Brazil, Germany and U.A.E. While other investors might favor the international growth angle for Copart, I still prefer KAR over Copart.
KAR, as a pure domestic North American play, should benefit from the historical high car ownership period driving new vehicle sales and salvage car auctions. Another key factor in choosing KAR over Copart is that KAR sports an attractive 3.4% forward dividend yield, while Copart does not pay any dividend. Copart does not provide any forward-looking guidance, but the company grew its revenue and earnings per share by 12% and 4%, respectively, for the nine months ended Apr. 30.
LKQ Corporation (NASDAQ:LKQ) is a distributor of alternative repair products, including salvage vehicle parts, to professional repair shops. Similar to KAR, relationships with insurance companies and physical locations are key drivers for LKQ’s business. LKQ Corporation (NASDAQ:LKQ) increased its share of insurers’ repair programs from 40% of its fiscal 2008 revenues to more than 50% of its fiscal 2012 revenues through the provision of free quotation services and total loss vehicles disposal services.
With over 300 facilities located across the U.S. and Canada, LKQ has an edge over smaller players as its customers prefer to deal with the company because of its national footprint. LKQ raised its organic revenue growth guidance for the full year of 2013 from 5.5%-7.5% to 6.5%-8.5%. This came on the back of a record quarterly revenue of $1.2 billion for the first quarter of 2013. Like Copart, LKQ does not pay a dividend.
Conclusion
I like KAR for its market leadership, operating the top two players for whole car auctions and salvage car auctions in North America. It is also valued at a slight discount to its peers with a forward price-to-earnings ratio of 16.6. Despite this relative undervaluation and a 3.3% forward dividend yield, KAR is still overvalued on an absolute basis with a price/earnings to growth ratio of 1.35. I will recommend investors to put KAR on their watchlist and consider taking a position if it moves below 1.0 times price/earnings to growth.
Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Copart and LKQ. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Should You Invest in This eBay for Cars? originally appeared on Fool.com is written by Mark Lin.
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