ARB Corporation (ASX: ARP) has been a favourite of mine for a number of years. I see its products and logos around in my local area, and the general popularity of the brand speaks for itself. From an investor's perspective, what makes this company so appealing, and where could it go from here?
1. Earnings growth
Over the past 10 years has been strong and steady, rising from $10.2 million in 2003 to $42.3 million in 2013 for a compounded annual growth rate of 15.2%. When you have dependable earnings growth like that, the company's future growth prospects are easier to read.
2. No debt but lots of cash
Since 2010, the company has had no debt, long-term or short-term, because its business generates enough profit to fund its growth without needing any loans.
Currently, it has about $43 million in cash alone, or about the same as its 2013 total net profit after tax. That kind of financial strength will come in handy for market ups and downs that come during any business cycle.
3. Market coverage and store growth
It has 47 ARB stores across Australia, as well as a network of over 100 independent stores retailing its goods. In 2013, it added four new stores, and the thing I like about this is that it shows the management isn't trying to make the company grow too big too quickly. Stable growth and good market penetration through independent retailers is set at a good pace.
4. Market leader
It leads the market for 4WD vehicle accessories, and has the largest market share in the motor vehicle parts and accessories manufacturing industry in Australia, according to the IBISWorld industry research website. 4WD and off-road vehicles are very popular now, and amongst new car sales, the SUV market is growing faster than the overall average, so the company has a growing number of potential customers.
Foolish takeaway
The current mining slowdown is expected to affect the company's sales since that industry is a big purchaser of parts and accessories in the off-road vehicle class. This may be short-term matter, but ARB's past earnings growth and success means it can power through, and be a success in the long term. That's what investors want to see.
If it does hit a bump along the road, and the share price pulls back, then that may be a bargain opportunity.
