Why Penske Automotive's Shares Crashed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of car dealer Penske Automotive (NYSE: PAG  ) fell 10% today after releasing earnings.

So what: Third quarter earnings per share of $0.60, after one-time items, was actually better than expected, and revenue beat, as well, but investors are worried about future profitability. Gross margin was only 2.6%, below estimates of 2.8%, and the company is selling cheaper cars because consumers have less money.

Now what: The lower sale prices are concerning, but the steady improvement in the economy makes me think that the company will have better days ahead. Unemployment is falling and, eventually, wages will rise, which will allow for higher purchase prices. The stock trades at 11 time earnings, so I think there's plenty of value, given the revenue growth of 17% in the quarter.

Interested in more info on Penske? Add it to your watchlist by clicking here.

 

Fool contributor Travis Hoium has no positions in the stocks mentioned above. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDrawThe Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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