I think Carsales.Com Ltd (ASX: CAR) is a recession-proof company. The Carsales share price jumped 2.9% higher to a new all-time high of $21.23 per share in yesterday’s trade.
Some investors are skeptical of Carsales’ $5.2 billion market capitalisation, but I think it could be a strong buy in the current market.
Here’s why I think the Aussie online classifieds business is worth a look, despite its lofty valuation and economic uncertainty.
Why the Carsales share price is climbing higher
A strong earnings result last week helped boost the Carsales share price to a new record high.
Carsales reported a 1% increase in underlying revenue to $423 million with underlying net profit after tax up 6% to $138 million.
That means the Carsales share price has now surged 15.4% higher in August and is quickly shaping up as a top outperformer amongst the S&P/ASX 200 Index (ASX: XJO).
Why I like Carsales even in a recession
The coronavirus pandemic has hit the economy hard and even caused the Carsales share price to drop 45% in the March bear market.
However, I think those investors have missed a huge opportunity for Carsales in a recession. As times get tough, people look to reduce their expenses and may even look to offload their cars.
On the flip side, many investors are wary of buying new cars when cash is tight, so demand for second-hand vehicles may surge and create a strong market for a classifieds operator.
That has been evident as government stimulus measures like JobKeeper and early access to super has seen a surge in second-hand car sales.
That means even if we see further deterioration in the economy, I think the Carsales share price could still be good value.
Foolish takeaway
The Carsales share price has rocketed to a new record high in a strong start to the week.
Long-term investors will be impressed, but those looking to buy in may be a little hesitant. However, I think the current economic conditions could be a blessing in disguise for value-minded investors.
Of course, a diversified portfolio is key here. Carsales could be a good share to buy for some stability and potentially even countercyclical sales in 2021.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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