The stock market can be an irrational beast, often punishing a company due to the myopic tendencies of so many investors who focus on the immediate future. Looking longer term however, things are looking great for Carsales.Com Ltd (ASX: CRZ) which today reported a record profit for the six months to December 31 2014, despite a step-up in competition from CarsGuide, which is owned by News Corp (ASX: NWS).
So What: Carsales.Com, which operates a suite of Australian classifieds websites, reported a 7% increase in net profit after tax (NPAT) to a record $46.7 million. Revenues for the period were up 34% to $150.9 million (well ahead of the Bloomberg consensus of $137.3 million according to The Australian) and were bolstered by a 9% improvement in its core domestic business. Meanwhile, Carsales.Com also recorded a 15% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to $72.9 million.
Despite the record set of results however, the market sold the stock down by as much as 7.4% early in the session. While it's possible investors were hoping for even greater returns, it's also possible they honed in on a warning of more moderate growth in NPAT. Carsales.Com CEO Greg Roebuck said: "We anticipate revenue and EBITDA to remain solid throughout H2 FY15 (the second half of the current financial year), while NPAT will grow more moderately."
Now What: Over the next few years, Carsales.Com is expected to continue widening its moat (sustainable competitive advantage) in its core Australian market, with growing margins and a rapidly expanding customer base. It's also faced with an incredible opportunity to grow overseas – particularly in Brazil and South Korea, which both experienced "pleasing revenue growth" over the half.
While it is has traded as low as $9.56 today, the stock is much closer to its 52-week low ($9.35) than its 52-week high ($12.61). Although it still trades on a projected price-earnings ratio of 20.8x at that price, it represents a fantastic growth prospect which could earn fantastic returns to investors who buy today.
