GUD Holdings Limited up 9.85% in a day: Should you buy?

On Monday 28 July, GUD Holdings Limited (ASX: GUD) shot up 9.85% to $7.25, which is surprising because on Friday it fell 8.08% to $6.60 when it reported its full year results. Both days had relatively high share volumes, with Monday’s being much more than Friday. It led the S&P/ASX 200 Index (ASX: ^XJO) stocks in share price gain on Monday.

What was in the report

The company, which manages a diversified portfolio of products and services such as Sunbeam, Oates, Dexion, Ryco, Wesfil, Goss, Davey and Lock Focus, reported a full year revenue decline of 1%, yet its underlying net profit was down as much as 17%. Including restructuring costs, its statutory net profit was down 44% on FY 2013.

The earnings growth it saw in its Oates, Automotive, Davey and Lock Focus businesses was offset by weaker results from its Sunbeam appliances and Dexion storage solutions businesses.

Dexion is its largest business by sales, yet its Automotive and Oates businesses generate higher operational earnings.

–  Its outlook for 2015 and 2016

The company expects that business conditions will be mostly unchanged in FY 2015, with modest organic growth for most of its businesses projected. However, during that time its restructuring program will continue.

By FY 2016, it anticipates a $10 million annualised benefit from the restructuring. With profit improvement plans, it projects about a $20 million annualised benefit over the next two years.

–  For investors

Because of the mix of products, investors could look at companies like Breville Group Ltd (ASX: BRG), developer and distributor of small appliances such as Breville, Kambrook and Ronson to compare. Since 2011, GUD Holdings net profits and return on equity have been trending down, whereas Breville Group has oppositely kept a steady growth path for both.

For automotive parts distributor and retailer companies, I would much rather prefer stocks like ARB Corporation Limited (ASX: ARP), which has maintained a stable growth rate of revenue and earnings for the last 10 years with its return on equity usually around 25% – 29%.

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I look forward to seeing GUD Holdings hit its restructuring and profit improvement targets, but I think Breville Group and ARB Corporation have much better growth prospects currently. However, there's one more company that could be an even better buy. This small-cap ASX stock offers a 7% grossed-up dividend yield and strong track record for growth.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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