The global automotive industry is facing severe problems at the moment. Supply chain woes are causing massive parts shortages, such as semiconductors, issues that are significantly harming production of new vehicles.
It’s a problem that’s clouding the outlook of many car retailers, but not all. Reduced vehicle output is playing into the hands of second-hand specialist Motorpoint Group (LSE: MOTR), for one.
A shortage of available new vehicles is pushing prices of pre-owned vehicles through the roof. According to the AA, prices are rising at “unprecedented rates,” with demand for nearly-new cars — a segment which Motorpoint specialises in — increasing particularly strongly.
AA data shows that prices of Britain’s most popular second-hand cars have leapt 57% between 2019 and today. The impact the shortage of new vehicles is having on the pre-owned market could remain to continue boosting revenues at Motorpoint for some time longer too. Mercedes-Benz chief Ola Källenius has recently said that the semiconductor shortage smacking new vehicle production could even drag into 2023.
Sales are soaring
The strength of the pre-owned market is reflected in Motorpoint’s recent stream of market updates. In early October’s latest statement, the company said sales had rocketed 57% in the six months to September.
Like retailers of new vehicles, Motorpoint has also been hit by short supplies of stock. But the business has taken steps to address this and expanded its core market of vehicles below three years old to include models that are aged up to four.
This recent strong trading helped Motorpoint’s share price jump earlier in October. But the business has since retraced and lost all of those gains. The retailer’s now 18% more expensive than it was a year ago, and I think the release of half-year financials on 25 November will push the firm’s share price higher again.
A growth share on my radar
I think the company’s current valuation leaves plenty of space for fresh gains. At a price of 342p per share, Motorpoint carries a price-to-earnings growth (PEG) ratio of just 0.2. A reading below 1 suggests a UK share could be undervalued, or so investing theory goes.
Buying Motorpoint shares isn’t without risk, of course. As well as the dangers of stock shortages, a period of significant inflationary pressure could also dent sales as broader consumer spending comes under the cosh.
It’s my opinion though, these threats are more than reflected in the company’s ultra-low PEG ratio. I don’t just like Motorpoint because of the bright outlook for used-car prices. I like its great track record in growing sales far above those of the broader market. And I’m encouraged by its plans to keep expanding (it recently sealed the deal on a new site in Milton Keynes).
City analysts think Motorpoint’s earnings will rise 86% and 45% in the years to March 2022 and 2023 respectively. I think it could be one of the most attractive growth shares out there.
