KAR Auction Services (NYSE: GPI) and Group 1 Automotive (NYSE:GPI) are both retail/wholesale companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, risk, valuation, institutional ownership, profitability, analyst recommendations and dividends.

Dividends

KAR Auction Services pays an annual dividend of $1.40 per share and has a dividend yield of 2.2%. Group 1 Automotive pays an annual dividend of $1.04 per share and has a dividend yield of 1.3%. KAR Auction Services pays out 56.0% of its earnings in the form of a dividend. Group 1 Automotive pays out 13.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. KAR Auction Services has raised its dividend for 5 consecutive years and Group 1 Automotive has raised its dividend for 8 consecutive years.

Profitability

This table compares KAR Auction Services and Group 1 Automotive’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
KAR Auction Services 11.50% 26.15% 5.46%
Group 1 Automotive 1.97% 15.73% 3.61%

Valuation and Earnings

This table compares KAR Auction Services and Group 1 Automotive’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
KAR Auction Services $3.46 billion 2.44 $362.00 million $2.50 25.15
Group 1 Automotive $11.12 billion 0.14 $213.44 million $7.73 10.12

KAR Auction Services has higher earnings, but lower revenue than Group 1 Automotive. Group 1 Automotive is trading at a lower price-to-earnings ratio than KAR Auction Services, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

99.0% of KAR Auction Services shares are held by institutional investors. 1.3% of KAR Auction Services shares are held by company insiders. Comparatively, 5.0% of Group 1 Automotive shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of current ratings for KAR Auction Services and Group 1 Automotive, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
KAR Auction Services 0 3 6 0 2.67
Group 1 Automotive 1 6 2 0 2.11

KAR Auction Services currently has a consensus target price of $60.13, suggesting a potential downside of 4.38%. Group 1 Automotive has a consensus target price of $83.14, suggesting a potential upside of 6.24%. Given Group 1 Automotive’s higher probable upside, analysts clearly believe Group 1 Automotive is more favorable than KAR Auction Services.

Volatility and Risk

KAR Auction Services has a beta of 1.06, meaning that its stock price is 6% more volatile than the S&P 500. Comparatively, Group 1 Automotive has a beta of 1.78, meaning that its stock price is 78% more volatile than the S&P 500.

Summary

KAR Auction Services beats Group 1 Automotive on 10 of the 17 factors compared between the two stocks.

KAR Auction Services Company Profile

KAR Auction Services, Inc., together with its subsidiaries, provides used car auction and salvage auction services in the United States, Canada, Mexico, and the United Kingdom. The company operates through three segments: ADESA Auctions, IAA, and AFC. The ADESA Auctions segment offers whole car auctions and related services to the vehicle remarketing industry through online auctions and auction facilities. It also provides value-added services, such as auction related, transportation, reconditioning, inspection, title and repossession administration and remarketing, vehicle research, and analytical services, as well as data. This segment sells its products and services through vehicle manufacturers, fleet companies, rental car companies, finance companies, and others. The IAA segment offers various loss solutions and salvage vehicle auction services that facilitate the remarketing of vehicles for a range of sellers, including insurance companies, dealerships, rental car companies, fleet lease companies, and charitable organizations. This segment also provides catastrophe, vehicle inspection center, and transportation and towing services. The AFC segment offers floorplan financing, a short-term inventory-secured financing, to independent used vehicle dealers. As of December 31, 2017, the company had a network of 75 whole car auction locations and 175 salvage auction sites. The company was formerly known as KAR Holdings, Inc. and changed its name to KAR Auction Services, Inc. in November 2009. KAR Auction Services, Inc. was founded in 2006 and is headquartered in Carmel, Indiana.

Group 1 Automotive Company Profile

Group 1 Automotive, Inc., through its subsidiaries, operates in the automotive retail industry. It sells new and used cars, light trucks, and vehicle parts; arranges vehicle financing; sells service and insurance contracts; and provides automotive maintenance and repair services. The company has operations primarily in the metropolitan areas of Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, Oklahoma, South Carolina, and Texas in the United States; 28 towns in the United Kingdom; and in the metropolitan markets of Sao Paulo, Parana, Mato Grosso do Sul, and Santa Catarina, Brazil. As of February 15, 2018, it owned and operated 230 franchises, 175 dealership locations, and 48 collision centers that offer 32 brands of automobiles. The company was founded in 1995 and is headquartered in Houston, Texas.

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