We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Asbury Automotive and Robinhood highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – August 5, 2021 – Zacks Equity Research Shares of Asbury Automotive Group, Inc. (ABG - Free Report) as the Bull of the Day, Robinhood Markets, Inc. (HOOD - Free Report) as the Bear of the Day.
There’s a good chance you’ve already heard that the automobile sales industry has been very hot lately. Due to many factors - including supply shortages, shipping delays, pent-up demand from the pandemic and the enormous amount of fiscal stimulus boosting customers’ spending power – auto dealers are barely able to keep new and used vehicles on the lot.
Not too long ago, individual auto dealerships were mostly privately held family businesses – and they also tended to be very profitable, especially as those dealers switched from a model that was dependent on sales for revenues to one in which the service and repair department accounts for the lion’s share of the profits.
The National Association of Auto Dealers estimates that the sale of new vehicles makes up 58% of the revenue at the average dealership but just 26% of profits. Used vehicles are a bit better at 31% of sales and 25% of profits. That leaves the repair department with 11% of sales and 49% of profits. It’s a cash cow!
That shift also made auto dealers a much more investible enterprise because the service revenues are much less economically sensitive than sales. You can choose to put off the purchase of another vehicle when times are tight, but you can’t necessarily do the same with repairs and maintenance - if you want to keep driving to work.
National chains like CarMax and AutoNation are great companies and enjoy a lot of visibility, especially because of their huge advertising budgets. Investors who want a piece of the pie should also consider a smaller and lesser-known dealer group that’s quietly amassing a broad network of dealers in key markets.
Asbury Automotive Group is headquartered in Duluth GA, but owns dealerships all over the Southeast, from Florida to St. Louis. Through a series of strategic acquisitions – mostly of multi-unit operations - Asbury now operates 91 dealerships and 25 collision repair centers. And they’re very profitable.
With a market capitalization of under $4 billion, Asbury Automotive is going to do almost $10 billion in sales this year.
Do you like the idea of a 0.4X Price/sales ratio? I certainly do.
And the profit picture is even better. Though the current share price around $195 might seem expensive, it’s downright cheap when you consider that the Zacks Consensus Earnings Estimate for 2021 is $22.79/share.
That’s a forward P/E Ratio of just 8.7X.
While revenues are anticipated to rise 34.6%, the profit expectations are up 76.7%.
Rising revenues and increasing margins is a tried-and-true recipe for success.
Six full-year upward earnings estimate revisions in the past 30 days earn Asbury Automotive Group a Zacks Rank #1 (Strong Buy). A perfect report card with “A’s” in Value, Growth and Momentum Style Scores round out the picture.
Even better, because they’re generating so much cash right now, even if there were to be a downturn in sales, ABG could take advantage of its aggressive acquisition style and big war chest to pick up lesser-performing competitors on the cheap.
The auto-sales industry is doing very well right now and there a few bad picks in the whole bunch. There’s none better however, than Asbury Automotive Group.
The shares of electronic trading app provider Robinhood rallied 50% yesterday to close at $70.39. After going public at $38/share just a week ago (and then initially declining), Robinhood is now up 85% in its first week as a public company. Who knows, by the time you read this later today, the shares might even be up more...
You might be thinking that you should hook your wagon to this star and see if you can’t make a big score on what has definitely become the hottest stock in the market, rivaling even the meteoric ascents* of GameStop and AMC Entertainment earlier this year.
Since this is the “Bear of the Day” you might be expecting me to bash Robinhood as a company, but you aren't going to find that here. (Though if you are interested in hearing me do that, listen in to Tracey Ryniec’s Market Edge Podcast this week.)
Instead, I’m simply going to explain what I think is a major mechanical factor in the runup we just saw, and you can make your own decision about whether you want to go ahead and place that buy order.
The Float
When a stock goes public via a traditional IPO – as Robinhood did – not all shares are sold to the public. Most of the shares that are owned by the company’s founders and early private investors remain in their hands and only a fraction of the total shares outstanding find new buyers. In the case of Robinhood, 52.4 million shares were sold to the public - out of approximately 835 million outstanding.
If you want to sell the shares short, you have to borrow them first - and only a very small fraction are available for you to borrow. It’s impossible to know the exact number of shares out for loan, but the word on the street is that it has been extremely difficult to get a locate in Robinhood shares.
(A “locate” means that your broker has found actual shares for you to borrow and sell.)
The Options
After a stock goes public via an IPO, options on that stock are not available to trade until a week later. In the case of Robinhood, the day that options trading was first available was Wednesday.
A popular phenomenon lately has been for aggressive retail traders with a large tolerance for risk and an equally large appetite for outsized profits to buy short-dated call options rather than buy the shares themselves.
Because they’re looking for maximum leverage on the trade, these traders tend to gravitate toward the highest strike calls, because they're the least expensive and they can buy the largest number of them, thus “controlling” the largest number of shares.
On Wednesday, 70 was the highest strike listed in Robinhood options. The volume traded in the August 70 calls was 79K contracts. The next two most heavily traded options were the 65 calls and the 60 calls at about 15K each. All other strikes traded a tiny fraction of that.
The volume in the 47 strike calls (which were at-the-money when the stock opened for trading) was 190 contracts.
In the next listed month – September – once again the 70 calls were the most heavily traded, with 9K changing hands, followed by the 65 and 60 calls with about 2K/each. Many other September options were barely traded at all.
It’s a fairly safe assumption that the prevailing direction of order flow in all those 60-70 strike call trades was retail investors buying them and market-makers selling them.
The Perfect Storm
When market makers sell calls, they usually hedge the position by buying shares of stock. So after each call buy by retail traders, there was likely to have been an offsetting stock purchase by the market-maker who sold the calls.
In normal circumstances, there are stock traders and market makers stacked up on both sides of the market. When the price rises a bit, they become more willing to sell. It's a higher price. Buy low, sell high. It's in Chapter One of the textbook.
You can buy pretty much all of the Apple calls you'd like, and the market-maker who sells them to you will have no problem buying all the shares he wants to hedge the trade, including from traders who are willing to assume a short position in the stock. AAPL shares are extraordinarily liquid. Buy all you want, sell all you want, borrow all you want. Whatever.
Robinhood shares are not liquid. Remember, it’s almost impossible to sell them short right now. All those call buys sent market makers looking for shares to buy in an environment in which it was exceedingly difficult to sell short, so they had to pay progressively higher prices to get the shares they needed. It's a very simple supply-and-demand effect. The shares ripped higher.
(If you’re worried about the option market makers, don't. They were selling options at 250% implied volatility. If you don’t know what that means, it’s a story for another day, but suffice it to say that they’re doing quite well.)
And that’s it. The end of my story.
It’s far from the only factor that sent HOOD shares soaring, but it almost certainly played a big part.
So if you want to buy shares that just rallied 50% in a single session largely because of a mechanical reason, be my guest.
It might happen again - several times over, in fact. Really.
Also, the Chicago Cubs are currently 51-57 and you can get 400-1 for them to win the World Series on DraftKings today. Why not grab a piece of that, too? Everybody loves the cubbies!
*Although I just used it, I've always been a little baffled about the term "meteoric rise." From the perspective of Earth, meteors don't rise. They fall.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Asbury Automotive and Robinhood highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – August 5, 2021 – Zacks Equity Research Shares of Asbury Automotive Group, Inc. (ABG - Free Report) as the Bull of the Day, Robinhood Markets, Inc. (HOOD - Free Report) as the Bear of the Day.
Here is a synopsis of all two stocks:
Bull of the Day:
There’s a good chance you’ve already heard that the automobile sales industry has been very hot lately. Due to many factors - including supply shortages, shipping delays, pent-up demand from the pandemic and the enormous amount of fiscal stimulus boosting customers’ spending power – auto dealers are barely able to keep new and used vehicles on the lot.
Not too long ago, individual auto dealerships were mostly privately held family businesses – and they also tended to be very profitable, especially as those dealers switched from a model that was dependent on sales for revenues to one in which the service and repair department accounts for the lion’s share of the profits.
The National Association of Auto Dealers estimates that the sale of new vehicles makes up 58% of the revenue at the average dealership but just 26% of profits. Used vehicles are a bit better at 31% of sales and 25% of profits. That leaves the repair department with 11% of sales and 49% of profits. It’s a cash cow!
That shift also made auto dealers a much more investible enterprise because the service revenues are much less economically sensitive than sales. You can choose to put off the purchase of another vehicle when times are tight, but you can’t necessarily do the same with repairs and maintenance - if you want to keep driving to work.
National chains like CarMax and AutoNation are great companies and enjoy a lot of visibility, especially because of their huge advertising budgets. Investors who want a piece of the pie should also consider a smaller and lesser-known dealer group that’s quietly amassing a broad network of dealers in key markets.
Asbury Automotive Group is headquartered in Duluth GA, but owns dealerships all over the Southeast, from Florida to St. Louis. Through a series of strategic acquisitions – mostly of multi-unit operations - Asbury now operates 91 dealerships and 25 collision repair centers. And they’re very profitable.
With a market capitalization of under $4 billion, Asbury Automotive is going to do almost $10 billion in sales this year.
Do you like the idea of a 0.4X Price/sales ratio? I certainly do.
And the profit picture is even better. Though the current share price around $195 might seem expensive, it’s downright cheap when you consider that the Zacks Consensus Earnings Estimate for 2021 is $22.79/share.
That’s a forward P/E Ratio of just 8.7X.
While revenues are anticipated to rise 34.6%, the profit expectations are up 76.7%.
Rising revenues and increasing margins is a tried-and-true recipe for success.
Six full-year upward earnings estimate revisions in the past 30 days earn Asbury Automotive Group a Zacks Rank #1 (Strong Buy). A perfect report card with “A’s” in Value, Growth and Momentum Style Scores round out the picture.
Even better, because they’re generating so much cash right now, even if there were to be a downturn in sales, ABG could take advantage of its aggressive acquisition style and big war chest to pick up lesser-performing competitors on the cheap.
The auto-sales industry is doing very well right now and there a few bad picks in the whole bunch. There’s none better however, than Asbury Automotive Group.
Bear of the Day:
The shares of electronic trading app provider Robinhood rallied 50% yesterday to close at $70.39. After going public at $38/share just a week ago (and then initially declining), Robinhood is now up 85% in its first week as a public company. Who knows, by the time you read this later today, the shares might even be up more...
You might be thinking that you should hook your wagon to this star and see if you can’t make a big score on what has definitely become the hottest stock in the market, rivaling even the meteoric ascents* of GameStop and AMC Entertainment earlier this year.
Since this is the “Bear of the Day” you might be expecting me to bash Robinhood as a company, but you aren't going to find that here. (Though if you are interested in hearing me do that, listen in to Tracey Ryniec’s Market Edge Podcast this week.)
Instead, I’m simply going to explain what I think is a major mechanical factor in the runup we just saw, and you can make your own decision about whether you want to go ahead and place that buy order.
The Float
When a stock goes public via a traditional IPO – as Robinhood did – not all shares are sold to the public. Most of the shares that are owned by the company’s founders and early private investors remain in their hands and only a fraction of the total shares outstanding find new buyers. In the case of Robinhood, 52.4 million shares were sold to the public - out of approximately 835 million outstanding.
If you want to sell the shares short, you have to borrow them first - and only a very small fraction are available for you to borrow. It’s impossible to know the exact number of shares out for loan, but the word on the street is that it has been extremely difficult to get a locate in Robinhood shares.
(A “locate” means that your broker has found actual shares for you to borrow and sell.)
The Options
After a stock goes public via an IPO, options on that stock are not available to trade until a week later. In the case of Robinhood, the day that options trading was first available was Wednesday.
A popular phenomenon lately has been for aggressive retail traders with a large tolerance for risk and an equally large appetite for outsized profits to buy short-dated call options rather than buy the shares themselves.
Because they’re looking for maximum leverage on the trade, these traders tend to gravitate toward the highest strike calls, because they're the least expensive and they can buy the largest number of them, thus “controlling” the largest number of shares.
On Wednesday, 70 was the highest strike listed in Robinhood options. The volume traded in the August 70 calls was 79K contracts. The next two most heavily traded options were the 65 calls and the 60 calls at about 15K each. All other strikes traded a tiny fraction of that.
The volume in the 47 strike calls (which were at-the-money when the stock opened for trading) was 190 contracts.
In the next listed month – September – once again the 70 calls were the most heavily traded, with 9K changing hands, followed by the 65 and 60 calls with about 2K/each. Many other September options were barely traded at all.
It’s a fairly safe assumption that the prevailing direction of order flow in all those 60-70 strike call trades was retail investors buying them and market-makers selling them.
The Perfect Storm
When market makers sell calls, they usually hedge the position by buying shares of stock. So after each call buy by retail traders, there was likely to have been an offsetting stock purchase by the market-maker who sold the calls.
In normal circumstances, there are stock traders and market makers stacked up on both sides of the market. When the price rises a bit, they become more willing to sell. It's a higher price. Buy low, sell high. It's in Chapter One of the textbook.
You can buy pretty much all of the Apple calls you'd like, and the market-maker who sells them to you will have no problem buying all the shares he wants to hedge the trade, including from traders who are willing to assume a short position in the stock. AAPL shares are extraordinarily liquid. Buy all you want, sell all you want, borrow all you want. Whatever.
Robinhood shares are not liquid. Remember, it’s almost impossible to sell them short right now. All those call buys sent market makers looking for shares to buy in an environment in which it was exceedingly difficult to sell short, so they had to pay progressively higher prices to get the shares they needed. It's a very simple supply-and-demand effect. The shares ripped higher.
(If you’re worried about the option market makers, don't. They were selling options at 250% implied volatility. If you don’t know what that means, it’s a story for another day, but suffice it to say that they’re doing quite well.)
And that’s it. The end of my story.
It’s far from the only factor that sent HOOD shares soaring, but it almost certainly played a big part.
So if you want to buy shares that just rallied 50% in a single session largely because of a mechanical reason, be my guest.
It might happen again - several times over, in fact. Really.
Also, the Chicago Cubs are currently 51-57 and you can get 400-1 for them to win the World Series on DraftKings today. Why not grab a piece of that, too? Everybody loves the cubbies!
*Although I just used it, I've always been a little baffled about the term "meteoric rise." From the perspective of Earth, meteors don't rise. They fall.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.