Is it time to put Group 1 (NYSE: GPI) automobiles on your watch list?


For newbies, it might seem like a good idea (and an exciting prospect) to buy a business that tells a good story to investors, even if it lacks a history of revenue and profit altogether. But as Warren Buffett said, “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you are the patsy.” When buying such historical stocks, investors are all too often the fools.

In the age of investing in the blue sky of tech stocks, my choice may seem old-fashioned; I always prefer profitable businesses like Group 1 Automotive (NYSE: GPI). While that doesn’t make stocks worth buying at all costs, you can’t deny that successful capitalism ultimately requires profits. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when in a hurry.

Discover our latest analysis for Group 1 Automotive

How fast does the group 1 automobile grow?

If a company can sustain earnings per share (EPS) growth long enough, its stock price will eventually follow. So it’s no surprise that I like to invest in companies with growing EPS. Who among us wouldn’t applaud Group 1 Automotive’s 40% annual stratospheric growth in compound EPS over the past three years? Such rapid growth may well be fleeting, but like a lotus blooming from a cloudy pond, it arouses the joy of suspicious value-gatherers.

A close look at growth in income and profit margins before interest and taxes (EBIT) can help inform a vision on the sustainability of recent earnings growth. Not all Group 1 Automotive revenue this year is revenue operations, so keep in mind that the revenue and margin numbers I used might not be the best representation of the underlying business. The good news is that Group 1 Automotive’s revenue is growing and EBIT margins improved by 2.0 percentage points to 6.3% compared to last year. Checking those two boxes is a good sign of growth in my book.

In the graph below, you can see how the business has increased its profit and revenue over time. To see the actual numbers, click on the graph.

NYSE: GPI Revenue and Revenue History January 8, 2022

As we live in the present moment all the time, there is no doubt in my mind that the future matters more than the past. So why not check out this interactive graph showing future EPS estimates for Group 1 Automotive?

Are Group 1 Auto Insiders Aligned With All Shareholders?

I like that business leaders have some skin in the game, so to speak, because it increases the alignment of incentives between the people who run the business and its real owners. So it is good to see that Group 1 Automotive insiders have significant capital invested in the stock. Indeed, they have invested a sparkling mountain of wealth, currently valued at 143 million US dollars. This suggests to me that management will be very attentive to the interests of shareholders when making a decision!

Should you add the Group 1 automobile to your watchlist?

Group 1 Automotive’s profits took off like any random cryptocurrency, in 2017. This kind of growth is just plain eye-catching, and the large investment held by insiders certainly informs my view of the business. Sometimes the rapid growth of BPA is a sign that the business has reached an inflection point; and I like those. So, in my opinion, Group 1 Automotive is worth putting on your watch list; after all, shareholders do well when the market underestimates fast-growing companies. We don’t want to rain too much on the parade, but we also found 3 warning signs for Group 1 Automotive (1 is not going too well with us!) That you should be aware of.

You can invest in any business. But if you’d rather focus on stocks that have been the subject of insider buys, here’s a list of companies that have made insider buys in the past three months.

Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.


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