Originally Posted by
BlackPeter
Great result - congratulations to Todd and his team!
So, lets look at the share price:
Forward PE (at SP $4) is based on (now potentially too conservative) analyst forecasts 12.6, forward earnings CAGR is 8. If things continue the coming years as they started a year or so ago, than this stock looks still really really cheap, doesn't it? Yes it does.
I guess the only question is - will things continue to improve with this velocity or are we already in the exuberance phase? I think the dynamics driving demand have been well articulated by the company What helped Turners to achieve such an amazing result?
Well, it is hard to get these days new cars given the Covid related production issues all car manufacturers seem to have. Logistic is currently screwed up and semiconductor manufacturers didn't anticipate the swift post Covid ramp up (but a post Covid drop). Question is just - how long will semiconductor manufacturers and car companies need to catch up and swamp the market with new cars. Months? Quarters? Years? Decades? My guess is it will take less than a year ... and I am holding semiconductor manufacturers as well as car manufacturers ... they talk about quarters to resolve the current production issues. How many more quarters to address production backlogs and how many after that to get the vehicles shipped here and how is this in any way relevant to Turners customers who want a used car, and can't afford a new one ?
Such problems typically end up in overproduction issues - how long will it take that car manufacturers dump their new surplus cars in our backyard and what will that mean for Turners business?I think you dramatically overestimate the number of people who cross shop used cars and new cars. Turners core customer lies in the $10K - $20K range in my opinion. Your concerns in this area are ostensibly irrelevant to Turners in my opinion
Another plus for Turner was last FY that many people are not able to hold on to their money - it keeps burning holes into their pockets and so they just can't fight the urge to spend it as soon as it comes in. Given that Covid took their chances to spend their money travelling overseas, they happily used more of it to boost the margins of the car salesmen. How long will this phenomena continue when borders start to open again - or will it be in future less money available to buy the next banger? You think people might be more inclined to want to travel in their own car than on public transport ? Why would that be do you think ? Forbar recently came out with a report opining that international travel would not return to previous norms until 2026. WOW that's a long period of tailwinds !
I have no doubt that the team at Turners will adapt ... but the question is - does it make sense to assume that the company will keep growing? I suggest you actually read their presentationSelling used cars is still no rocket science, the barriers to enter the industry are (very) low and the pressure from new car sales will increase. Even offering car loans is not rocket science, and there is plenty of competition around. Finance company lending money AND getting it back with an appropriate return is a more challenging business than you suggest. Lots of people think repayment of a loan is optional and filtering those type of people out is easier said than done
How much better will it get for Turners - and why? Read their presentation
I still see Turners as a cyclical finance company with attached car sales business ... not more and not less. If I look at the SP, it looks SP is currently clearly in its upper quartile. Might stay there as long as the QE funded buying spree continues, but will it really keep rising like phoenix out of the ashes? What happens with all these car loans when (not if) the QE bubble pops?