CAR Group (ASX:CAR) Surges 10% on 16% Profit Growth- Has the Selloff Gone Too Far?

CAR Group beats expectations and reaffirms guidance

CAR Group (ASX: CAR) surged 10 per cent to A$26.91 on Monday after delivering half-year results that suggest the market may have misjudged this business. The company behind carsales.com reported revenue of AUD 626 million, up 13 per cent in constant currency, while net profit after tax rose 16 per cent to AUD 143 million. Management lifted the interim dividend 10 per cent to 42.5 cents per share (30% franked) and reaffirmed full-year guidance for 12 to 14 per cent revenue growth and 10 to 13 per cent EBITDA growth. With the stock still 36 per cent below its November 2024 high of A$42.71, the question for investors is whether this represents a genuine re-entry point for one of the ASX’s highest-quality digital platforms.

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CAR Group’s Global Marketplace Strategy Delivers Across Four Continents

What stood out in the half-year results was the consistency of growth across CAR Group’s international portfolio. Group EBITDA margins held at 54 per cent, and every region contributed positively, a sign that the company’s diversification strategy is working as intended.

Latin America led the way, with Webmotors delivering 23 per cent revenue growth and 29 per cent EBITDA growth off a strong Brazilian car market. In North America, Trader Interactive posted 13 per cent revenue growth as the recreational vehicle and powersports segments returned to growth. Encar in South Korea grew revenue 17 per cent, supported by expanding inspection centres and rising Guarantee product adoption. The core Australian Carsales business grew revenue by 8 per cent, with dealer revenue up 10 per cent on stronger lead volumes.

The breadth of this performance is significant. Each marketplace benefits from network effects; more buyers attract more sellers, creating competitive advantages that are difficult for new entrants to replicate.

CAR Group Delivers 95% Cash Conversion and Invests in AI-Driven Growth

Beyond the top-line growth, the quality of earnings deserves attention. CAR Group converted 95 per cent of EBITDA into operating cash flow during the half, and trailing twelve-month free cash flow reached AUD 512 million. This provides the flexibility to manage the company’s AUD 1.25 billion net debt position, fund growth initiatives, and continue growing dividends.

The 10 per cent dividend increase reflects that confidence. Meanwhile, management is investing in two promising initiatives. CG Lab, a newly announced AI hub based in Brazil, will develop shared capabilities across all marketplaces. The C2C Payments product in Australia has processed AUD 268 million since launch, pointing to a promising new revenue stream built on the existing platform.

The Investor’s Takeaway for CAR Group

times, well below the 35 to 45 times range where the stock has traded since its international acquisitions reshaped the business from 2021 onwards. That compression suggests the market has priced in a more cautious outlook than what management is guiding for.

The analyst community appears to share that view. All 11 covering analysts carry Buy ratings, with an average price target around AUD 38, implying roughly 40 per cent upside. If the company delivers on reaffirmed guidance, the current valuation looks difficult to justify on the downside.

However, investors should weigh two risks. Net debt sits at AUD 1.25 billion, or 1.8 times net debt to EBITDA, manageable but leaving limited room if conditions deteriorate. Currency headwinds of 3 to 4 per cent in the second half could also compress reported results even if the underlying business performs well.

We believe the selloff appears excessive for a business demonstrating this level of consistency. For investors with a medium-term horizon, CAR Group offers an opportunity to access a market-leading platform at a valuation that has not been this attractive in years.