The Carsales.Com Ltd (ASX: CAR) share price hit a new record high of $21.23 last Monday, 24 August. The price has since retraced a bit, down 3% from the high. But that still leaves Carsales shareholders up a tidy 23% year-to-date.
Like most every share on the S&P/ASX 200 Index (ASX: XJO), Carsales shares were savaged during the COVID-19 panic selling, falling 45% from 12 February through 23 March.
Since the March low, the Carsales share price has gained 97%. In comparison, the ASX 200 has gained 31% over that same time.
What does Carsales do?
Carsales.Com is Australia’s largest online automotive, motorcycle and marine classifieds business. The company also has operations and interests in a range of different automotive classifieds websites in countries across Asia and South America, making it one of the largest digital automotive advertising businesses in the world.
Together with its subsidiaries, Carsales employs more than 600 people in Australia to develop leading technology and advertising solutions that drive its business around the world.
Carsales shares first began trading on the ASX in 2009.
Why the Carsales share price could head for new record highs
The company’s full 2020 financial year results, released on 19 August, helped drive the Carsales share price to new record highs. Despite headwinds thrown up by the coronavirus, the company managed to increase its underlying revenue by 1% from the previous year. Net profit after tax (NPAT) also increased 6% to reach $138 million.
So, with its share price recently hitting new records, why could Carsales be heading even higher?
Aside from its proven business model and a likely consumer spending spree once the economy begins to recover from COVID shutdowns, I believe the rapidly strengthening Aussie dollar will see a marked increase in future revenue.
As recently as 19 March, the Australian dollar was worth 57 US cents. Today it’s worth just shy of 74 US cents. And leading economists are tipping this to head towards 80 US cents over the next year.
Now predicting currency movements is notoriously difficult. But with the US Federal Reserve indicating it’s happy to see inflation run over its previous 2% target figure, I believe these economists have it right.
With a strong Aussie dollar, the price of imported cars – and most all our cars are imported – falls. That should encourage more people to buy new cars, which will in turn see more used cars sold on Carsales.
And that should translate to higher Carsales share prices ahead.
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Motley Fool contributor Bernd Struben 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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