Should You Hold Asbury Group (ABG)?

Asbury Automotive Group, Inc. (NYSE: ABG) has been a resilient player in the automotive retail sector, demonstrating strong financial performance and consistent earnings growth. However, recent market fluctuations have raised questions about the company's prospects. In this article, we will analyze ABG's resilience, its focus on parts and services, and the role of acquisitions and innovative technologies in its growth strategy to determine whether it's a good time to hold the stock.



ABG's Resilience in the Face of Market Fluctuations

Asbury Automotive Group has shown remarkable resilience in the face of market fluctuations, thanks to several key factors:

1. Diversified Revenue Streams: ABG's business model is not solely reliant on new vehicle sales. The company generates a significant portion of its profits from the back of the house in parts and services, which accounts for more than 50% of its profits. This diversification helps mitigate the impact of market fluctuations on new vehicle sales.
2. Strong Financial Performance: Despite recent market fluctuations, ABG has maintained a strong financial performance. In the last 12 months, the company reported revenue of $16.50 billion and earnings of $357.00 million, with earnings per share (EPS) of $17.65.
3. Consistent Earnings Growth: ABG has demonstrated consistent long-term earnings growth over the past 10 years, with a growth rate of 327.99%.
4. Strong Balance Sheet: ABG has a strong balance sheet, with a current ratio of 1.20 and a quick ratio of 0.21, indicating that the company has sufficient liquidity to meet its short-term obligations.



ABG's Focus on Parts and Services

Asbury Automotive Group differentiates itself from competitors by focusing on its parts and services business, which contributes to more than 50% of its profits. This strategy is highlighted by Black Bear Value Partners in their Q4 2024 investor letter, where they mention that the strength of ABG's model lies in the back of the house in parts and services.

The long-term prospects for this strategy are positive, as the parts and services business is a recurring revenue stream that is less dependent on new vehicle sales. As vehicles age, they require more maintenance and repairs, which drives demand for parts and services. Additionally, as technology advances, there will be an increased need for specialized parts and services, further driving demand for ABG's offerings.

Furthermore, ABG's focus on innovative technologies, such as the implementation of the Tekion platform, is expected to improve operational efficiencies and enhance the customer experience, further driving growth in the parts and services business. The expansion of TCA (Total Car Care) offerings and growth in parts and service could significantly boost earnings, as highlighted by the consensus narrative from 8 analysts.



Acquisitions and Innovative Technologies in ABG's Growth Strategy

Acquisitions and innovative technologies play a significant role in ABG's growth strategy. Asbury Automotive Group has a multi-year plan to increase revenue and profitability through organic operations, acquisitive growth, and innovative technologies. This strategy aims to enhance the company's competitiveness and drive long-term growth.

Acquisitions:
Asbury Automotive Group has been expanding its dealership network through acquisitions. As of December 31, 2024, the company operated 152 new vehicle dealerships, consisting of 198 franchises and representing 31 domestic and foreign brands of vehicles. These acquisitions have allowed ABG to diversify its product offerings, enter new markets, and increase its customer base. By acquiring dealerships, ABG can leverage synergies and economies of scale, leading to improved operational efficiency and increased profitability.

Innovative technologies:
ABG has been investing in innovative technologies to streamline its operations and enhance the customer experience. One example is the implementation of the Tekion platform, which aims to improve margins and enhance operational efficiencies. Additionally, ABG is expanding its Total Car Care (TCC) offerings and growing its parts and service business, which can significantly boost earnings.



Conclusion: Should You Hold Asbury Group (ABG)?

Asbury Automotive Group, Inc. (NYSE: ABG) has demonstrated resilience in the face of market fluctuations, thanks to its diversified revenue streams, strong financial performance, and consistent earnings growth. The company's focus on parts and services differentiates it from competitors and provides a strong long-term growth prospect. Additionally, ABG's growth strategy, which includes acquisitions and innovative technologies, further enhances its competitiveness and drive long-term growth.

Given these factors, Asbury Automotive Group appears to be a solid hold for investors looking for a resilient and growing automotive retailer. However, it is essential to monitor the company's performance and the broader market trends to make informed investment decisions.