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AP Eagers Ltd shares soar 14%: Is it a bargain growth stock?


Shares of automotive retailer, AP Eagers Ltd (ASX: APE), soared as much as 14% today after the group announced a positive short-term outlook this morning.

In an announcement to the ASX, AP Eagers said following a strong first quarter it expects to achieve a record underlying net profit before tax of between $54 million and $58 million, when it reports its half-year results later in the year. The mid-range of its guidance would imply a 22% jump over its 2014 first half result of $46 million.

AP Eagers underlying profit before tax excludes acquisition costs and asset fair value adjustments.

As noted in February – when the group reported a 19.9% jump in full year profit – a severe hail storm in November 2014 generated significant activity for new and used cars, and parts sales in south east Queensland during the first quarter of 2015.

“As experienced in other significant weather events, this activity is likely to have pulled forward some future demand,” the company said in its ASX announcement.

In addition, strong performance from the group’s New South Wales business coupled with better economic conditions continues to buoy future growth.

Is AP Eagers a bargain?

Up 74% during the past year – compared to a 9.7% return from the S&P/ASX200 (ASX: XJO) (Index: ^AXJO) – AP Eagers shares have run hard on the back of acquisitions and consumers’ willingness to make big ticket purchases during the current low interest rate environment. However, Automotive Holdings Group Ltd (ASX: APE) shares haven’t performed nearly as well. AP Eagers owns 19.9% of Automotive Holdings Group.

Whilst the near-term outlook for both companies appears bright, Automotive Holdings Group appears a better buy in my opinion. Not only is it cheaper (on a relative basis), but it currently offers a dividend yield of 5%, fully franked.

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned. Owen welcomes your feedback on Google plus (see below) or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. 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 Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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