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Motorpoint Group (LSE: MOTR) is a share that really has the bit between its teeth right now. Recovering from a sharp sell-off in early September (due to large share sales by the firm’s co-founder David Shelton) the used car retailer’s share price has exploded 20% in two months and came within a whisker of closing at record peaks above 260p in recent sessions.

Investors have been buoyed recently by UK lawmakers avoiding the no-deal Brexit trapdoor at the end of October, but this is not the whole story as, despite a clear deterioration in the broader retail sector Motorpoint is, well, motoring.

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On the move

This was evident in the most recent financials of early October when the retailer advised that it expected revenues to have risen around 1% in the six months to September, a result which it suspects is “a significant outperformance of the nearly-new car market.” 

Motorpoint also noted that the “unusually high pressure” on car margins had now abated and that gross margins for the half year were expected to be broadly in line with those of a year earlier, leading it to affirm its trading expectations for the full year (to March 2020). And there was more good news to come as the small-cap, encouraged by its continued strong cash generation announced that it was planning to repurchase £10m worth of shares.

Pleasingly for the company and its investors, industry news flow has remained positive since then too. The new car market might be on its knees, but according to the Society of Motor Manufacturers and Traders (SMMT), demand for pre-owned autos is actually beginning to pick up. Sales of these units rose 0.9% to 18,925 in the third quarter, snapping a run of nine consecutive quarterly declines.

Careful now!

With this sort of news, surely Motorpoint is worth serious consideration today? Well, not so fast, I’d say. The retailer’s ability to grow ahead of the market is to be commended, but can overall sales continue to defy gravitational conditions in the broader retail market? I’m not so sure.

Those SMMT figures were welcome but demand for the used car segment remains quite patchy, and total industry sales were down 0.8% in the first nine months of 2019. There were some holes to be picked in those Q3 numbers too as demand petered out in September following a strong start to the period (July demand was at its best since May 2018).

SMMT chief executive Mike Hawes has commented that issues such as “ongoing economic uncertainty and growing confusion over local clean air zones make it difficult to predict the future” and with the Brexit saga looking set to drag through 2020 and possibly beyond, it’s clearly too early to read too much into Motorpoint’s most recent financials.

It’s quite likely that the retailer will put out another punchy release when interims are unveiled on November 28, though the still-murky outlook for retailers of big-ticket items like autos means that the risks remain high. The retailer’s valuation (a forward P/E ratio of 13.2 times) and inflation-beating 3% dividend yield are decent, but not decent enough to encourage me to part with my cash.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Motorpoint. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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