Title: Goldman Sachs Bullish on ASX Tech Stock CAR, Sees Strong Growth PotentialTitle: Goldman Sachs Bullish on ASX Tech Stock CAR, Sees Strong Growth Potential Body: Goldman Sachs analysts have issued a bullish note on ASX-listed technology stock CAR Group Limited (ASX: AUTO), highlighting its potential for significant returns in the coming years. Company Overview: CAR is an auto-listing company operating in Australia, South Korea, the United States, and Latin America. It facilitates the sale and purchase of new and used vehicles through its online platforms. Analyst Commentary: According to Goldman Sachs, CAR is well-positioned for strong growth despite current economic headwinds. The broker notes that the company’s Australian business remains robust, particularly in the used car segment. Additionally, CAR’s international operations are also performing well. Forecast and Target Price: Goldman Sachs has reaffirmed its Buy rating on CAR with an improved price target of $41.40. This implies a potential upside of 19.1% for investors over the next 12 months. Dividend Yield: The broker also forecasts partially franked dividend yields of 2.1% in fiscal 2024 and 2.3% in fiscal 2025, bringing the total potential return to over 21%. Buy Thesis: Goldman Sachs summarizes its buy thesis as follows: * Leading position in the Australian auto classified market * Strong international operations * Forecast earnings growth of 11% per year over the next three years Risks: Potential risks to the investment include global economic trends, changes in dealer relationships, and foreign exchange exposure.
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Goldman Sachs analysts believe there are still big returns to be had in the technology sector.
An example of this is the technology stock ASX CAR Group Limited (ASX: AUTO).
What does the broker say about this ASX tech stock?
According to a note from the investment bank this morning, analysts believe the auto-listing company is well-positioned for strong growth in the coming years, despite some headwinds from FX and Trader Interactive (TI). It commented:
We revise CAR’s near-term earnings outlook ahead of FY24 results, noting recent investor questions on: (1) US and Australian dealer health; (2) FX; and (3) potential M&A. Overall, we remain confident that despite spot FX and TI dealer headwinds, CAR is well positioned to continue delivering ‘good’ earnings growth (i.e. >10% EBITDA) and maintain our preferred earnings rating.
Goldman also stressed that the ASX tech stock’s Australian business is performing well, despite a challenging advertising market. It said:
AU trends remain robust, particularly in used cars, with volumes (>95% of total) remaining solid (e.g. 4-7); pricing power remains (i.e. 5-6% price uplift in private, we expect 4-5% dealer uplift in September as used dealer margins remain strong and CAR not materially up due to covid), while media revenues are supported by healthy new car volumes despite the challenging ad market. With elevated domestic opex growth in CAR in 1H24 (13.4%), there is also scope to decelerate capex and maintain double digit EBITDA growth.
High yields
In light of the above, the broker has reaffirmed its buy rating on the ASX tech stock with an improved price target of $41.40. Based on the current share price of $34.76, this implies a potential upside of 19.1% for investors over the next 12 months.
In addition, Goldman Sachs is forecasting partially franked dividend yields of 2.1% in fiscal 2024 and 2.3% in fiscal 2025, bringing the total potential return over 12 months to over 21%, more than double the historical return of the equity market.
Goldman then concludes by summarizing its buy thesis. It said:
Carsales is the largest domestically classified auto business, alongside strong international operations in Korea, US (non-auto) and LATAM. We have a Buy rating on CAR as we are increasingly confident in the company’s earnings momentum (both locally and globally) – we forecast +11% EPS CAGR over FY24-27E. Downside risks include: (1) global macro trends; (2) dealer relationships; (3) FX exposure.
