IBD Stock Analysis
- Lithia Motors stock is back above a 288.66 buy point from a cup base.
- Shares also retook their 50-day line and broke above a short trend.
- The stock is on track to forming a flat base with a 310.67 entry.
Industry Group Ranking
* Not real-time data. All data shown was captured at
1:42PM EST on
Lithia Motors (LAD) is the IBD Stock Of The Day as the auto-dealer operator retakes a buy point after an earlier breakout led to a quick sell-off. Lithia Motors stock is also forming a new base.
Auto sales screeched to a halt during the early days of the Covid-19 pandemic, but have since risen as customers opt for cars instead of relying on public transit.
Lithia Motors sells both new and used cars via a network of over 200 dealerships. Despite the downturn in car sales in the spring, Lithia has been busy buying up locations in New York, Texas, Tennessee and California during the year as sales roar back.
It’s also making a shift toward digital sales with its new Driveway e-commerce service, which allows users to buy or sell cars online as well as schedule at-home repair services.
Lithia Motors Stock
The auto stock climbed 1.9% to close at 295.54 on the stock market today. Lithia Motors stock broke out earlier this month from a 288.66 cup-base entry point.
But shares soon sold off, falling just over 7% below the entry. Such a “round trip” is typically a sell signal, and a loss of 7%-8% from a buy point triggers the automatic sell rule.
However, investors could see a gray area instead of a clear sell signal, as Lithia Motors stock soon flashed bullish signals, namely finding support at its key 50-day line and breaking above a short trend line.
Other investors could wait for a new pattern. Lithia Motors stock is on track to have a new flat base after this week with a 310.67 entry.
This is considered a base-on-base stock pattern. It’s often found when a stock is ready to break out, but the market is unsteady and not ready to support the 20% gain needed for a more traditional-looking base.
Lithia Motors stock is ranked No. 2 in IBD’s Retail/Wholesale-Automobile Group. It has a 98 out of a best-possible 99 Composite Rating and a 96 EPS Rating. The Composite Rating compiles scores on key fundamental and technical metrics: earnings and sales growth, profit margins, return on equity, and relative price performance. Investors should focus on stocks with a Composite Rating of 90 or higher.
Meanwhile, shares of rival dealership chain AutoNation (AN) are just above a 67.86 buy point after breaking out of a cup-with-handle base earlier this month.
Carvana (CVNA), meanwhile, plunged 8.5% as growth stocks broadly took a hit Monday. The stock is a recent IBD Stock of the Day and is a pioneer in the auto e-commerce auto segment.
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Lithia Earnings, Sales Drive Higher
In October, Lithia Motors reported a 103% jump in third-quarter earnings to $6.89 per share, which beat Wall Street estimates by 67 cents. Revenue rose 8.7% year over year to $3.62 billion, also beating estimates, driven by an 11% jump in used-car sales.
While new-car sales were down, executives noted during the earnings call that the average selling price in its new-car division rose 6%, or $3,500, year over year. Many consumers have more money to spend on autos following a massive drop in air travel as they look for vacations closer to home.
Looking to Q4, analysts see EPS soaring 121% and revenue rising 20.5%.
CarMax (KMX) reported Q3 results that beat analyst estimates on Dec. 22. But the stock sold off despite the beat after the used-car retailer offered no forward guidance amid the continued coronavirus pandemic.
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