As a car shopper, you may already know Carsales.com Ltd (ASX: CRZ). For investors, they probably know it as the car sales website stock that doubled in price within the past two years.
If you missed out on that gain, the growth story that got it there is still happening. I have four things that show it could keep going from here over the long term.
– Rising earnings and dividend growth
Although the company only listed in 2009, since then it has grown revenue to $215 million in 2013 with net profit of $83.5 million. Car sales viewers have flocked to the website, making stunning 38% profit margins for it.
Dividends have almost doubled in the past four years. In the first half, the interim dividend was raised about 16%, matching the earnings per share growth. Further steady earnings growth is forecast.
– Marketing-leading position
As the leading car sales website, sellers want to be listed on a site where the largest amount of viewers are. Buyers see it as one of the best places to see the widest variety of cars and prices available. The combination keeps both coming back, driving Carsales.com's business further.
– Expanding domestically and overseas
The company wants to take advantage of its success by creating many more sites for popular sale items like motorcycles, boats, trucks and caravans. It can then integrate the services of each and cross-brand to drive name awareness.
It doesn't plan to stop there. Large car markets in Asia are next for growth. It can transplant its technological skill and marketing experience like a chain store into new regions.
It has invested in companies like iCar Asia Limited (ASX: ICQ) that operates car sales sites covering Malaysia, Indonesia and Thailand. Recently it acquired a 49.9% stake in South Korea's largest car sales website SK Encar. In Brazil, it owns a stake in that country's largest website, WebMotors. As you can see, setting itself up with the respective market leaders is its strategy rather than starting from scratch.
– Share price and PE ratio
The stock has pulled back about 15% from its $12.61 price in early March. The quick rise then was due to announcements about its overseas investments, which got the market looking. The excitement may have died down, but the growth prospects of the company certainly haven't.
At $10.67 now, it is offering a decent 2.8% dividend yield. Its price/earnings ratio is 26, which may seem high, but a stock with high earnings growth will attract this much. Where will the company and its share price be in five years? That is what we want to focus on.
