The company I have chosen to examine is AutoNation, Inc. AutoNation is incorporated in Delaware, but their corporate headquarters are located in Fort Lauderdale, Florida. The income for AutoNation, Inc. is derived from two main sources, the sale of new and used vehicles, and providing parts and service for vehicle maintenance and repair. The most recent annual report, or Form 10-K filed with the Securities and Exchange Commission was filed on February 14, 2018, and the fiscal year end date was December 31, 2017. The firm hired by AutoNation to act as the independent registered public accounting firm was KPMG, LLP. On the balance sheet and income statement all of the values are listed in the millions with the exception of share data. The total assets AutoNation, Inc. reported on the balance sheet were $10,271.5 (in millions), which equals $10,271,500,000. The income statement reported total revenues of $21,534.6 (in millions) which equals $21,534,600,000. Net income was reported on the income statement at $434.6 (in millions) which equals $434,600,000. The basic earnings per share is was reported as $4.44.
When calculating depreciation AutoNation, Inc. utilizes the straight-line method. To record inventory, they use two different methods. Parts, accessories, and other inventory are carried at whichever is lower between acquisition cost or market. New and used vehicles are recorded at the lower of cost or market by employing the specific identification method. When calculating the cost transportation expense, reconditioning, dealer installed accessories and acquisition are all incorporated. AutoNation, Inc. has two classes of stock authorized according to the balance sheet. 5,000,000 shares of preferred stock are authorized, but there are none outstanding. 1,500,000,000 shares of common stock are authorized, and as of December 31, 2018 there were 102,562,149 shares outstanding. On Monday, November 26, 2018 at the open of the New York Stock Exchange, AutoNation, Inc. stock, with the stock ticker of AN, was listed at @@@@@ and at the close of the New York Stock Exchange AN was listed at @@@@@@@. Over the past twelve months AN stock has experienced a wide range in price with a high of $62.02 and a low of $36.41. AutoNation, Inc. did not declare or pay any dividends for 2017. While reviewing the Form 10-K I found the breakdown of percentage of revenue verses the breakdown of percentage of gross profit interesting.
While parts and service only make up 15.8% of the revenue, they make up 44.4% of the gross profit. In contrast, new vehicle sales make up 56.6% of the revenue, but only account for 17.5% of the gross profit. This tells me that the profit margin is much higher on parts and service than it is on new vehicle sales. In fact, when new and used vehicle sales are combined, they make up 79.3% of revenue, but only account for 26.9% of gross profit. So, while AutoNation, Inc. if primarily thought of as a place that sells new and used cars, without the parts and service side of their business their profits would be significantly smaller, and in fact, the company might not be viable. AutoNation, Inc. stock is one I would be interested in investing in. However, I would not invest $10,000. I try to diversify my portfolio to mitigate exposure, and $10,000 in one stock is more than I would typically buy. I would probably go up to 100 shares, which would amount to between $3,700 and $4,000. One reason I would be interested in investing in AN is an established stock with good market share and it is currently trading near its 12-month low. That is one factor I always look at when choosing stock to invest in. Another reason to purchase AN is that two of the three rating companies, Bank of America/Merrill Lynch and Morningstar both rate it as a buy. It is also a medium risk stock, which I also look for. I do not like to get into stock with high volatility.
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