The Carsales.com Ltd (ASX: CAR) share price was on form again on Wednesday and continued to zoom higher.
The online auto listings company’s shares climbed 2% to hit a record high of $21.82.
When the Carsales share price hit that new high, it meant it was up over 28% since the start of the year.
Why is the Carsales share price at a record high?
Investors have been buying the company’s shares this year thanks to its positive performance in FY 2020 despite facing significant headwinds from the COVID-19 pandemic.
For the 12 months ended 30 June 2020, Carsales posted a 1% increase in adjusted revenue to $423 million. And thanks to cost reductions, which supported margin improvements, Carsales delivered adjusted EBITDA growth of 6% to $218 million.
Another big positive was management’s commentary in relation to current trading conditions.
It commented: “We have observed a strong rebound in demand for vehicles across multiple international markets as countries have emerged from lockdown. We have also seen continued migration to digital platforms as well as people’s aversion to taking public transport (deemed unsafe due to COVID-19) have increased the propensity for car ownership, which are positive trends for our business.”
While management stopped short of providing any real guidance for FY 2021, the market appears optimistic that its earnings growth will continue.
What else is supporting the Carsales share price?
Another positive for the company was yesterday’s Federal Budget.
As well as putting more money in consumers’ pockets from tax cuts, the government will allow businesses with turnover of up to $5 billion a year to immediately write-off all assets up to $150,000.
This is great news for businesses that are in need of new vehicles and could underpin solid listing volume growth on the Carsales platform.
Is it too late to invest?
While I think Carsales is a quality company, I feel its shares are looking fully valued after these recent gains. As a result, I would class it as a hold at this point.
For now, I would sooner buy SEEK Limited (ASX: SEK) shares, which I think offer a more compelling risk/reward.
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Returns as of 6th October 2020
More reading
- Meet the latest ASX small cap stock that’s racing ahead during COVID
- Is the Carsales (ASX:CAR) share price a good buy?
- 3 profitable October ASX 200 trends
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- New $280 million ASX tech share listing Wednesday
Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended carsales.com Limited and SEEK 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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