December 1, 2022

Javier14mascherano

Born to perform

Is it a Wise Decision to Buy Asbury Automotive (ABG) Shares?

3 min read

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LRT Capital Management, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. A return of -7.37% was recorded by the LRT Economic Moat strategy for the first quarter of 2022, resulting in a 12-month return of +16.72%. In the LRT Economic Moat strategy, as of April 1st, 2022, the fund’s net exposure was approximately 99% and its estimated net beta-adjusted exposure was 62.2%. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.

In its Q1 2022 investor letter, LRT Capital Management mentioned Asbury Automotive Group, Inc. (NYSE:ABG) and explained its insights for the company. Founded in 1995, Asbury Automotive Group, Inc. (NYSE:ABG) is a Duluth, Georgia-based automotive retailer with a $4.2 billion market capitalization. Asbury Automotive Group, Inc. (NYSE:ABG) delivered a 6.36% return since the beginning of the year, while its 12-month returns are down by -9.15%. The stock closed at $183.71 per share on April 29, 2022.

Here is what LRT Capital Management has to say about Asbury Automotive Group, Inc. (NYSE:ABG) in its Q1 2022 investor letter:

Asbury Automotive Group is one of the largest automotive retailers in the United States. It operates 90 dealerships consisting of 112 franchises and 25 collision repair centers. The company’s stores offer new and used vehicles, parts, and service, as well as finance and insurance (F&I) products. Franchise agreements controlled by automotive manufactures and state laws create an environment of tightly controlled market entry and restricted competition.

The dealership industry is highly fragmented with 93.5% of dealers having only between 1-5 locations according to data from 2020. In fact, dealers with over 50 locations account for only 0.1% of the industry – a testament to the huge opportunity for consolidation that lies ahead. Industry dynamics, including the rising complexity of automobiles and the need for omnichannel distribution are favoring better capitalized and larger dealer groups. We believe Asbury Automotive Group has several distinct advantages, particularly its highly profitable parts and service business, its overexposure to the luxury vehicle business, which carriers the best margins, and its Clicklane omnichannel strategy. Asbury’s management has also been acting in the best interests of its shareholders by allocating capital towards acquiring dealerships to aggressively expand its business, and occasionally repurchasing stock when attractive acquisitions targets could not be found.

ABG is not a fast-growing SaaS business, but when paying a valuation of ¼ of the overall stock market, one does not need to make heroic assumptions about the future to enjoy strong returns as shareholders. We believe that over the next several years, Asbury will continue to acquire dealerships, occasionally buyback stock and invest to improve its digital shopping experience. We wrote about Asbury in detail in our August 2021 Investor Letter.”

Cars

Cars

Our calculations show that Asbury Automotive Group, Inc. (NYSE:ABG) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Asbury Automotive Group, Inc. (NYSE:ABG) was in 32 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 22 funds in the previous quarter. Asbury Automotive Group, Inc. (NYSE:ABG) delivered a 14.13% return in the past 3 months.

In April 2022, we also shared another hedge fund’s views on Asbury Automotive Group, Inc. (NYSE:ABG) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.

Disclosure: None. This article is originally published at Insider Monkey.

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