Ready to manage tricky market conditions
I get it, this company sells cars, which is a tough space to operate in. But even with new vehicle sales falling locally, Combined Motor Holdings (CMH) manages to do it better than almost anybody else. The operating margin has increased from 2.6% to a very strong 3.9% in the last five years, while HEPS has grown at a compounded 19% and the dividend at 27% over the same period. During this time the share price has almost doubled by growing at just under 15%. So, price has lagged growth in both profits and dividends.
Currently the dividend yield and priceto-earnings ratio (P/E) are sitting at around 7 and this suggests the market is expecting the future growth in profits to be negative.
New vehicle sales are expected to start creeping higher this year, but even if they’re just flat we can expect increased demand for quality second-hand vehicles, which are becoming harder to find due to lower new vehicle sales.
With a very strong balance sheet, CMH will be able to manage tricky market conditions and should continue to grow profits and dividends, adding to the already attractive yield.