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Why the Automotive Holdings Group Ltd share price has tumbled 11% today

Credit: AREA Construction

Unfortunately for its shareholders, the Automotive Holdings Group Ltd (ASX: AHG) share price has fallen this morning following the release of a trading update.

At the time of writing its shares are down 11% to $3.01, bringing their year-to-date decline to 23%.

What happened?

Yesterday auto retailer AP Eagers Ltd (ASX: APE) downgraded its full-year profit guidance due to weak trading conditions.

Today it was the turn of Automotive Holdings Group to advise how these trading conditions had impacted its business.

With car sales down sharply nationwide on the prior corresponding period and tighter consumer credit conditions in the automotive financing market leading to lower margins across the industry, Automotive Holdings Group has had a tough second-half.

In light of this management has advised that full-year operating profit after tax is expected to be in the region of $87 million and $89 million. Down between 8.4% and 10.4% year-on-year.

Previous guidance given in its February interim results was for full-year operating net profit after tax ahead of FY 2016.

Should you invest?

While the shares of both Automotive Holdings Group and AP Eagers look remarkably cheap following recent declines, it might be worth giving them both a wide berth until there are signs of improvement in the auto retail industry.

When things do improve, however, I feel both companies will be well worth taking a closer look at. Especially with their generous dividends.

In the meantime this high-yielding dividend share could be a far better option for income investors in my opinion. Its generous yield and international expansion make it a great pick in my opinion.

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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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