On July 8, I recommended Vroom despite the fact that it had appreciated dramatically over the previous month.
Why I Was Bullish on Vroom Stock
The insiders who owned Vroom were through-the-roof, A-quality investors, including Bill Gates and Bernard Arnault. They don’t get any better than that.
At the end of my article, I wrote:
“The two companies are in absolutely the same spot except Carvana’s sales are three times higher. In the end, the big winner will be the one that executes its plan better,” I stated.
“Having an A-list roster of investors will help keep Vroom on track….For me, Vroom stock is still a buy, despite the capital appreciation over the past month.”
Since July 8, VRM stock is up nearly 50%. And while I like the shares’ long-term outlook, I have to wonder if it wouldn’t be prudent to take some chips off the table. Those who own Vroom’s shares will have to make that decision on their own.
However, if you do sell some shares, here are three stocks you might consider buying with some of the proceeds. All of those stocks are trading at just over 50% of Vroom’s price-sales ratio of 5.96%, But these companies can still grow in the weeks and months ahead.
Premier (NASDAQ:PINC) trades at 3.09 times its sales and has a forward price-earnings ratio of 15.
Premier helps healthcare providers operate their businesses more efficiently. In a country in which the healthcare system spends way too much per capita, any company that can cut healthcare costs could be worth investing in.
Premier reported its fiscal fourth-quarter results on Aug. 25. Despite the headwinds of the novel coronavirus, its revenues rose 8% year-over-year to $342.8 million, while its net income declined 21% YOY to $55.4 million.
Premier recently initiated a 19-cent per-share dividend. Its annual dividend yield is now 2.3%.
The company has a lot of moving parts, so I’m going to take a closer look at it in the weeks ahead. However, since it’s forecasting mid-to-high single-digit-percentage growth in both sales and earnings per share, excluding some items, starting in fiscal 2022, and recently initiated a dividend, PINC stock ought to deliver for long-term shareholders.
Restaurant Brands International
I’m no fan of 3G Capital, which operates debt-heavy businesses such as Anheuser-Busch Inbev (NYSE:BUD). But the shareholders of 3G’s Restaurant Brands International (NYSE:QSR) have seen their investment recover nicely since March.
In early August, another InvestorPlace columnist, Chris Lau, recommended Restaurant Brands and six other restaurant stocks that should rebound significant once the pandemic goes away. Lau mentioned that the stock has mostly traded in a range between $40 and $60 since 2017.
But last year at this time, it was trading close to $80. I might not be a fan of Restaurant Brands or the other 3G-controlled companies, but I do believe that it can rise this year and into 2021.
Currently valued at 4.91 times its sales, the shares are much cheaper than their five-year average.
A Final Possibility
Those who have owned Sirius XM Holdings (NASDAQ:SIRI) for the past ten years are sitting on an annualized total return of 20% through Aug. 27. The bad news is that most of those returns were delivered between 2011 and 2015. Since then it hasn’t done that well.
However, every valuation metric shows that the satellite-radio company is cheap compared with its average levels of the past five years. Its current P/S ratio of 3.38 is 28% below its five-year average, and the other important valuation metrics are also well below their five-year averages.
How cheap is SIRI stock right now?
Based on Sirius’ trailing 12-month free-cash flow of $1.73 billion and an enterprise value of $33.65 billion, it has a free-cash flow yield of 5.1%. Earlier this year, when the shares were trading above $7, its free-cash-flow yield was much lower. With the stock trading at such low prices, it can probably climb 20% over the next year.
Over the long-term, Sirius can’t match Vroom’s potential upside, but it also hasn’t been nearly as overbought.
On the date of publication, Will Ashowrth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.