LKQ Corporation: Making Money Through Junk

Chances are you haven’t heard of LKQ Corporation (NASDAQ: LKQ) before. They deal with junk yards and salvage cars and are cleaning up. So much so that you should be able to double your money in the next few years by investing in the stock.

But before I detail why the stock price of LKQ will double, I first need you to understand the business and the industry that LKQ does business.

Who Is LKQ

LKQ Corporation began back in 1998. At the time, the auto and truck replacement parts business was a disheveled mess. Back then there were over 11,000 junkyards throughout the world that served roughly 200,000 collision centers.

Most of these junk yards were family run businesses and if you have a picture in your mind of a junk yard – the fences, security cameras, dogs roaming the property – you have a good idea of the state of affairs. Needless to say, the inventory management of the junk yards wasn’t the best.

Good luck walking into one and the owner having any idea if they had the part you needed or even where it might be located on the property.

But where there is disorganization, there is opportunity.

Donald Flynn started LKQ and began consolidating and organizing the industry. Today, LKQ runs 571 junk yards in the US, 91 in Scandinavia, and 81 in the UK. They are also the largest buyer of insurance company auctioned salvaged cars.

Where LKQ Is Headed

I mentioned that the stock price of LKQ should easily double in the next 4 years. Here is why.

First off, the salvage industry is an $8 billion dollar a year industry. The company is growing globally and especially in China where the middle class is growing faster than you can imagine. With a growing middle class comes disposable income and autos.

Second, if you pay attention to the news, new car sales are slipping. Cars are more reliable, so consumers are keeping them for longer than ever before. This means the greater need for replacement parts. This is where LKQ comes in.

Next, the company has their act together. Most of their junk yards are organized and the parts and inventory is categorized through a computer system. This means the process of finding a part is much easier for consumers.

Finally, the company has great relationships with insurance companies, which means LKQ is able to add to its inventory on a regular basis.

The Numbers For LKQ

In their most recent earnings report, LKQ reported earnings per share of $0.53 which beat estimates by $0.01. Revenues came in at $2.46 billion, also beating estimates by $60 million. This was an increase of 7% compared to the previous year.

And speaking of earnings, they show how stable of a company LKQ is. Cash flows, revenues and earnings per share have each increased every quarter since 2007.

So why will the stock price double?

LKQ is still growing globally, acquiring junk yards all over. As more cars are on the road and for longer periods of time, more replacement parts will be needed. And the prices for new cars is only going to increase.

If wage growth continues on its current path, more and more people will opt to keep their current cars even longer or upgrade to a used car that will need parts sooner rather than later.

And with the company keeping costs at bay, they are able to squeeze more income out of every dollar they earn.

Final Thoughts

If you are looking to double your money in a relatively short amount of time, LKQ Corporation is a stock worth considering. The company is well run and has every reason to keep churning out more and more profit every year. The only question that remains is how soon the stock price will double.

This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.

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