KAR Auction Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of used and salvaged vehicle auctioneer KAR Auction Services (NYS: KAR) sank 14% on Wednesday after its second-quarter results disappointed Wall Street.

So what: While KAR lost $14.3 million due to an early debt payoff, its revenue for the quarter -- $470.6 million versus the analyst consensus of $488 million -- is likely the more disappointing number for investors. In fact, KAR's top-line remained flat year-over-year, suggesting that the downturn in the auto industry continues to weigh heavily on used car volumes.

Now what:I wouldn't be so quick to pounce on today's plunge. "We anticipate that supplies of used cars at auction will remain tight for the remainder of the year," said KAR CEO Jim Hallett, "and there is no assurance that the strong performance at Insurance Auto Auctions and [Automotive Finance Corp.] will continue for the remainder of the year and offset the impact of these lower volumes." When you couple that not-so-great outlook with historically low returns on capital relative to close rival Copart (NAS: CPRT) , KAR seems like an easy pass.

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At the time this article was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Copart. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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