Why the AP Eagers Ltd share price zoomed higher today

AP Eagers Ltd (ASX:APE) shares climbed almost 5% after management provided a positive update on FY 2016. Should you buy this fast-growing automotive retailer?

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A big mover in early trade has been automotive retail group AP Eagers Ltd (ASX: APE). Its shares jumped almost 5% to $9.30 this morning after it announced a sixth consecutive record profit result.

For the year ended December 31 2016, AP Eagers expects to report a statutory net profit before tax of $141.4 million.

This will be a 17% increase from the $121 million it delivered in FY 2015 and exceeds the profit guidance range of between $135 million and $140 million it provided to the market in November of last year.

One thing in particular that impressed me with AP Eagers' performance in FY 2016 was that a key driver of the result was the strong like-for-like sales growth from its retail operations.

In its November update management advised that like-for-like sales growth is expected to be in line with the same record levels it achieved in FY 2015.

Another driver has of course been its expansion into new geographic territories through acquisitions. During the last calendar year AP Eagers entered Melbourne, Tasmania, Toowoomba, Hervey Bay and Townsville.

The successful integration of these acquisitions has not only proven to be accretive to earnings in FY 2016, but laid the foundation for a further boost to earnings growth in the year ahead according to management.

At present AP Eagers' shares are changing hands at around 17x trailing earnings. Whilst this may appear a touch expensive in comparison to Automotive Holdings Group Ltd (ASX: AHG) which trades at 11x trailing earnings, I believe the two companies have vastly different outlooks.

I believe AP Eagers is positioned well for strong long-term growth, whereas the struggling Automotive Holdings looks set for a couple of disappointing years of next to no earnings growth. I know which of the two I would rather be invested in.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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