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Is Lithia Motors’ Stock Set for a Comeback or a False Dawn?

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Written by Timothy Sykes Reviewed by Jack Kellogg Fact-checked by Ellis Hobbs

Strong quarterly earnings and a strategic acquisition have propelled Lithia Motors Inc.’s positive market sentiment, and on Wednesday, Lithia Motors Inc.’s stocks have been trading up by 10.1 percent.

What Analysts Are Saying:

  • Morgan Stanley’s recent upgrade of Lithia Motors to Equal Weight, with a notable price target boost from $225 to $310, suggests growing confidence in the company’s trajectory, despite former reservations about its business model.

Candlestick Chart

Live Update at 16:03:47 EST: On Wednesday, October 23, 2024 Lithia Motors Inc. stock [NYSE: LAD] is trending up by 10.1%! Discover the key drivers behind this movement as well as our expert analysis in the detailed breakdown below.

  • Citi made a similar move, raising its price target for Lithia to $320. This optimism comes with expectations of increased car demand due to better inventory supply and more incentives from carmakers, although some moderating reflections from the underperforming Q2 vehicle sales remain.

  • An important update announces Lithia & Driveway’s upcoming release of their Q3 earnings on Oct 23, 2024, which will be central to understanding whether recent optimism translates into concrete financial performance.

Lithia Motors’ Financial Pulse

Lithia Motors is showing signs of resilience, despite recent fluctuating stock prices. As of late, Morgan Stanley and Citi’s optimistic outlook on Lithia’s business paints a picture of renewed energy within the auto dealership realm. Predictions for strong demand in new and used cars are being paired with bumped-up price targets.

Looking at the company’s finances, things are a bit of a mixed bag. Revenue figures are solid at over $31B, and profitability metrics, like the gross margin of 16%, reflect a company in good health, even with a few bumps. Their return on equity stands robust at about 19%, showcasing that management is efficiently utilizing capitals.

However, on the flip side, Lithia is grappling with negative free cash flow, totaling a whopping -$278M recently. A quick peek at the cash flow statements shows hefty commitments on capital expenditures and stock repurchases, which may strengthen the company’s market presence in the longer term but could constrain liquidity if not carefully managed.

The balance sheet shows substantial assets, with notable goodwill and intangibles reaching around $4.68B. Combine these with total equity of nearly $6.37B, and you have a company grounded with a solid asset-backed foundation. However, short-term liabilities and a leverage ratio of 3.6 pose challenges that warrant focus.

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Moving in closer, their quick ratio stands at 0.8, emphasizing a potential liquidity pinch despite a fortified total assets turnover. Analysts are keen to see how future quarters tackle these financial pressures in light of strategic expansions and inventory renewals.

What’s Driving the Market Buzz

Analyst upgrades often trigger ripples in the stock market pond, and Lithia Motors is riding a similar wave. The crux of recent optimism revolves around a promising market for both new and used vehicles. A revived inventory pipeline could indeed carry forward Lithia’s current momentum.

Yet, there’s a caveat: the last quarter’s underperformance still looms, as Q2 sales for new vehicles fell short. Observers will be closely examining how these play out as lead-ups to the Q3 earnings announcement on Oct 23, 2024, unfold. Questions linger on how effectively Lithia navigates consumer demand dynamics amidst an evolving automotive landscape.

A priority for the dealership giant will be strategic distribution and customer retention, underpinned by their wide range of vehicle lifecycle offerings which aim to deliver growth without undue risk. Their strategic initiatives concerning digital sales channels and customer service enhancements remain pivotal to capturing broader engagement, thus impacting the stock’s path.

Wrapping Things Up: The Road Ahead for Lithia

The narrative emerging from the financial soldiery of Lithia Motors is a classic blend of hope and caution. Analyst confidence, bolstered by strategic aspirational plans and market opportunities, provides Lithia with a springboard for potentially rewarding ventures. However, pressing cash flow issues and the occupational hazards of heavy capital might curtail growth aspirations if not addressed with precision.

For those keenly tracking Lithia’s stock, the forthcoming Q3 earnings reveal will offer critical insights into whether these strategic gambits yield the anticipated rewards. As the charts presently illustrate a modest upward shift, the focus will be on how sustained or ephemeral these gains find themselves in the ever-swing stock landscape.

Looking ahead, a collective curiosity surrounds Lithia’s ability to leverage current market conditions and strategic pivots into veritable financial performance. The automobile domain presents a road teeming with opportunity; now, it’s in Lithia’s grip to steer towards prosperous terrains or find itself in stalled ventures. With such dynamic market undercurrents, all eyes remain on the unfolding horizon.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

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Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”