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Is PWR Holdings Ltd a buy at this share price?

PWR Holdings Ltd (ASX: PWH) has more than doubled its IPO share price of $1.50 since listing on the ASX in November 2015 gifting initial investors with a huge capital gain.

PWR Holdings develops custom cooling solutions for many of the world’s elite automotive racing series including Formula 1, NASCAR and Australia’s V8 Supercars. The company is also expanding into the aftermarket cooling sector.

Is there more to come?

There certainly could be, after the company beat its pro forma net profit prospectus forecasts for the 2016 financial year. PWR Holdings reported a pro forma net profit of $10.77 million – above its forecast of $10.46 million, from revenues of $47.3 million in FY16.

Revenues jumped 45.6% to $47.3 million in FY16 compared to the previous year, and the integration of the relatively recent acquisition of C&R Racing could see revenues and earnings rise further in the 2017 financial year. C&R Racing was acquired in March 2015.

The company certainly appears confident that 2017 will be another strong year, stating,

“PWR is well positioned to take advantage of future growth opportunities globally as it continues to:

  • Develop channels to the USA automotive aftermarket
  • Be ‘Resource Ready’ to take advantage of growth opportunities through ongoing investment in infrastructure and engineering and production personnel,
  • Expand its product offering to capture greater customer spend,
  • Deliver new OEM (Original equipment manufacturers) contracts in Australia and Europe”

PWR Holdings has delivered strong growth over the past four years, and there’s no reason to expect the company will disappoint investors this financial year.

financial-performance-from-prospectus

Source: Company Prospectus

PWR could emulate the success 4WD accessories manufacturer ARB Corporation Ltd (ASX: ARB) has enjoyed over the past decade, and the market certainly thinks the company can continue growing, although just one analyst covers the company according to Reuters. There’s also the potential for the company to move into other sectors, including cooling for electric vehicle batteries and house energy storage batteries.

Foolish takeaway

PWR shares are trading on a trailing P/E of ~29x, but net profit rose 27.3% in FY16 compared to FY15. The C&R Racing acquisition distorts those earnings somewhat, but if you add in significant insider ownership, zero debt and the company’s potential, PWR Holdings might be one stock Foolish investors want to add to their watchlist.

 

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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