America’s Car-Mart share price rises to $40 after strong earnings report

It’s been a long road back for America’s Car-Mart shareholders during 2016 since the stock price bottomed out at $21.50 in mid January on an earnings miss and competitive issues that sent loan delinquencies well above the comfortable range.

Bentonville-based Car-Mart on Aug. 18 blew past earnings expectations for the company’s first quarter in fiscal 2017. Since the stellar earnings report and improvement in the company’s delinquent loans, the share price rallied back to the $40 level on Tuesday (Aug. 23). Shares (NASDAQ: CRMT) closed at $40.16, up $1.52 or 3.93% in heavy trading.

Car-Mart’s share price has risen 24% over the past three trading days, setting a new 52-week high price of $40.93 in intraday trading on Tuesday. The company’s market cap has grown to $314.31 million in those same three days, an increase of $61.29 million since the earnings were announced Aug. 18.

Company executives held an earnings call with analysts on Friday (Aug. 19) highlighting some of the progress made in operations.

“Throughout the year, we’ve been working hard to improve the overall quality of our inventory and to improve the efficiencies of our collections process. And in the course of this past year, as we have talked about previously, we also made some very significant improvements to our underwriting process. All of these things work together to help assure greater success for our customers, which equates to greater success for our Company,” said CEO Hank Henderson. “Our success is very well aligned with our customers’ success, and we feel that is how it should be.”

He said there has been a slight benefit from a couple of indirect lenders pulling out of the market – a high risk, deep subprime market where Henderson said the majority of its customers have a 500 FICO credit score or below.

One of the biggest improvements involves inventory control. Henderson said the company employed more car procurement specialists and have been working to scour the markets for the best possible re-sale cars, trucks and SUVs available. He said buyers were avoiding models that needed repairs before sale, and focusing more on models that hold up through the average 29-month payment contract. Having the right inventory is just part of a successful sale, Henderson said, and the collection side of the business is equally important.

Car-Mart also revamped its credit qualifying model to try to screen better for potential problems before they make the loan. He said the stricter underwriting is helping, and slightly less competition from indirect lenders is also a plus. Henderson said the mature lots were taking back three or four less vehicles in a month’s time during the recent quarter.

Wall Street especially liked that the company’s gross profit margin improved to 41.8% from 38.7% for the fourth quarter of 2016. Analysts were not concerned that the company sold fewer cars in the period because total revenue growth was still a positive 2.2% thanks to the nearly $500 higher average sales price over a year ago.

While America’s Car-Mart remains a relatively high risk growth stock, Wall Street is pleased with the recent earnings growth and slightly better outlook than the company has reported any other time this year.