CAR share price in focus
Since the 1990s, CAR Group has been an operator of online marketplaces specialising in cars, motorcycles, and other vehicles.
As a marketplace provider, CAR Group aims to streamline the buying and selling process while providing added security and convenience for both parties. The combination of technology and advertising solutions gives both sellers and buyers peace of mind when making a big purchase.
The company has steadily grown over the last few years and now has global reach including in Australia (carsales), South Korea (Encar), the US (Trader Interactive) and Chile (chileautos).
The appeal of ASX tech shares
The S&P/ASX200 Info Tech Index (ASX: XIJ) has delivered an average annual return of 13.90% over the last 5 years, compared to the broader ASX 200’s 3.99% return. So, here’s why tech shares like CAR are drawing attention.
High Margins
Tech companies often boast better margins than more ‘traditional’ brick-and-mortar businesses. That is, they tend to be more profitable.
This is because they usually have low marginal costs and lower overheads (things like plant and equipment).
CAR’s latest annual report revealed gross margins of 84.20% and an operating margin of 37.60%.
Recurring revenue
Many tech businesses benefit from recurring revenue models like ‘software-as-a-service’ (SaaS). Compared to one-time product sales, this subscription-based approach generates consistent income, smooths revenue, and enhances predictability over time.
Global scale
Unlike physical businesses constrained by logistics, regulations, and trade wars, tech firms can often reach global markets with much less effort (and cost). By dealing in software accessible by something as simple as an internet connection, tech companies can quickly and efficiently increase their customer base.
CAR share price valuation
As a growth company, one way to put a rough forecast on the CAR share price could be to compare its price-to-sales multiple over time. Currently, CAR Group Limited shares have a price-sales ratio of 13.22x, compared to its 5-year average of 14.28x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased. In the case of CAR, revenue has been growing over the last 3 years.
Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the CAR share price.
