4 Auto Retail Stocks to Keep on Your Radar as the Industry Evolves

Industry Overview - The Zacks Auto Retail and Wholesale industry is experiencing significant changes due to evolving consumer habits, policy shifts, and strategic actions by key players [1][3] - The industry is consumer-driven, with performance closely tied to economic conditions, where increased disposable income typically leads to higher vehicle purchases [3] - The COVID-19 pandemic has accelerated the industry's shift towards online tools and e-commerce, a trend expected to continue [3] Factors Influencing Industry Dynamics - Car affordability has seen a modest improvement due to rising consumer incomes and dealer incentives, but tariffs on imported vehicles continue to pose challenges, potentially adding up to $5,700 to the cost of new cars [4] - The EV market is in a transitional phase, with first-half 2025 U.S. EV sales reaching 607,089 units, a 1.5% year-over-year increase, but a decline in demand is anticipated in the fourth quarter without government subsidies [5] - Auto retailers are making strategic acquisitions to enhance market share and diversify offerings, while also investing in digital platforms to meet changing customer expectations [2][6][7] Market Performance - The Zacks Auto Retail & Wholesale industry ranks 91, placing it in the top 37% of 245 Zacks industries, indicating positive near-term prospects [8][9] - Over the past year, the industry has outperformed the S&P 500, returning 16.3% compared to the S&P 500's 12.6% growth [10] Current Valuation - The industry is currently trading at an EV/EBITDA ratio of 8.95X, significantly lower than the S&P 500's 17.64X and the sector's 20.66X [13] Company Highlights - Penske Automotive: Completed acquisitions in 2024 representing nearly $2.1 billion in annualized revenues, with a strong order backlog and a low long-term debt-to-capitalization ratio of 15.5% [17][18] - Lithia Motors: Expanded its footprint through acquisitions, adding $3.8 billion in 2023 and $5.9 billion in 2024 in annualized revenues, with a focus on digital platforms to enhance customer experience [22][23] - AutoNation: Continues to grow through strategic acquisitions and digital transformation, with a recent purchase expected to add $200 million in annual revenues [25][26] - Group 1 Automotive: Achieved significant revenue growth through acquisitions, adding over $1 billion in 2023 and $3.9 billion in 2024, while focusing on an omnichannel strategy [31][32]