Penske Automotive Groups (PAG) stock has risen 31% in the last month mostly from July 13th to 16th and has managed to hold that strength right up to the end of market today. There are several reasons for this, the main one being that Penske was able to beat analyst estimates of their quarterly earnings report. Quarterly earnings reports and whether or not they beat the analyst’s estimates typically has a relatively large impact on the short-term price of a stock, as you can clearly see if you look at Penske’s chart. The long-term impacts of earnings really depend on the overall economy and the companies ability to continue to have positive earnings and earnings growth.
Penske’s earnings didn’t come out until July 29th but the stock started to rise almost 2 weeks before that. There are a few reasons for this, one of the main reasons for this is that companies usually release a guidance of their potential earnings a week or 2 before they actually release their earnings. Another reason for this is that insiders and people who watch the stock closely were likely buying coming up to earnings. Insiders have a certain window of time before and after earnings that they are restricted from buying or selling. This typically results in insiders buying and selling further from earnings reports than most traders and can be an indicator of whether or not earnings will be positive. You may not want to get this technical with buying and selling especially if you are a long term investor but they are still good things to know and keep an eye on to prevent you from buying in at a higher price than you really need to.
Analysts had estimated that Penske would report positive earnings of $0.55 per share, when in reality they reported earnings of $0.56 per share. This is down from the earnings of $1.42 per share from a year ago, but considering the impact of Covid 19 and the temporary closing of some of their dealerships this is actually a very good earnings report. One of the main factors that have helped Penske post a profit while many automotive companies are currently losing millions (or billions) is the fact that they also own a number of used car supercenters. With employment starting to rise as things reopen and the decline in public transportation due to Covid, car sales are starting to rebound and used car sales are picking up a market that they never had before in all the people leaving public transport to buy used vehicles during the pandemic.
All of this combines to give Penske a little more strength and diversity to weather the coronavirus than a lot of the auto manufacturers that only sell new vehicles. I am currently long on Penske and have been averaging down for a while (They are currently my most profitable trade if I were to sell), I will probably try and wait to see if they drop a bit in the next week or 2 before buying more but waiting sometimes bites you if the stock keeps going up so that could be a risky move. Only time will tell if the economy can fully recover post pandemic to the point that Penske starts to make even more money than before. If they cannot their share price will eventually start to fall. On the other hand, if they can recover and continue to grow you may not be able to buy Penske for much cheaper than they are right now anytime soon.
Penske Auto Group (PAG) Share price-$47.76 (as of July 29th), P/E ratio 10.09, Market Cap $3.84 Billion, 52 week range $19.99-53.81, EPS 4.732 (for the past year not the quarter). One other factor to consider about Penske is that they have relatively few shareholders and 2 shareholders own a large percentage of the company (Penske Corporation and Mitsui & Co. Ltd. own approximately 59% of all outstanding common shares). This means that these 2 shareholders can basically control any decision the company makes. For me this isn’t really a deterrent. I can’t buy enough shares to have a large say anyways and I figure you can always count on greed so these large holders are unlikely to try anything that will adversely affect the share price anyways. Especially since Roger Penske who owns Penske Corporation (and current CEO of Penske Auto Group) has his son Roger Penske Jr on the board of directors as well and will likely be trying to make him the next CFO or CEO.
Disclaimer: I am currently long on Penske and have a slight bias towards any company that is involved in stock car racing. (which Penske technically isn’t, but their largest shareholder owns Indy and runs a nascar team).