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AP Eagers Ltd share price jumps 6% on record profit result: Time to buy?

Much to the delight of its shareholders the AP Eagers Ltd (ASX: APE) share price is once again climbing higher.

In afternoon trade the automotive retailer’s shares are up over 6% to $9.00. This means its shares have now gained over 21% in just the last month.

Why are its shares higher?

This afternoon AP Eagers provided the market with an early look at its first-half results.

As you might have guessed by the share price reaction, the company is on course to deliver a strong first-half profit.

According to the release, the company expects to report a record first-half profit of $68.1 million, up from $67.9 million in the first-half of FY 2016.

Whilst a $200,000 increase on the prior corresponding period may not seem like much to get excited about, it is far better than the market was expecting.

Just over six weeks ago the company downgraded its half-year guidance to be in the range of 7% to 9% lower than last year’s result.

But a surge in new vehicle activity during May and June 2017 combined with company-wide operational improvements has turned things around and led to the surprise record profit result.

Unsurprisingly, shares with exposure to the automotive industry have all risen following the AP Eagers announcement.

These includes the shares of Automotive Holdings Group Ltd (ASX: AHG), Bapcor Ltd (ASX: BAP), and Super Retail Group Ltd (ASX: SUL).

Should you invest?

Following the strong rebound in its share price over the last month, I would say that AP Eagers is about fair value at present.

However, if the explosive finish to the first-half continues into the second-half, then there could still be reasonable upside ahead for its shares.

I would class it as a hold at this point and suggest investors keep a close eye on new vehicle sales over the coming months.

In the meantime I think this dividend share could be classed as being in the buy zone right now.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bapcor and Super Retail Group Limited. 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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