CAR: A high flyer living up to the name

In September last year I wrote an article about Car (ASX:CAR) where I asked the question, ‘could they continue to compound their growth?’ and pointed out that ‘ a lot will hinge on their ability to expand profitably in overseas markets.’ Exactly 14 months later, the share price has increased by 43%. Pro-forma revenue grew by 17%, of which 59% is now derived from outside Australia. Underlying profit also increased by 24%.

The premise of the previous article was that CAR was a high quality business that had demonstrated an ability to compound growth over many years. This was confirmed by its qualification for the Quality Compounder screen as presented by Stockopedia contributor Roland Head in his article Building a screen to find Compounding Quality stocks. CAR no longer meets the criteria for this screen as shown in the table below, although it only misses out on three areas which we will examine below.

CriteriaThresholdCAR (Sep 23)CAR (Nov 24)QualityRank808299Long-term ROCE18%21.4%16.1%TTM ROCE15%16.5%9.4%Operating margin 5 yr avg10%54.3%53.1%Operating margin TTM10%95.0%*37.9%Net margin 5 yr avg8%