The Bapcor Ltd (ASX: BAP) share price has dropped by around 10% since the initial good reaction to its result, I think it's worth looking at whether it's a buy.
Bapcor is Australia and New Zealand's leading auto parts company. It has a number of specialised businesses but its main two brands are Burson and Autobarn.
Here are three reasons why I think Bapcor is worth a look:
Better value
Bapcor revealed an impressive set of results. Some of the best numbers were that continuing operations revenue grew by 47.8%, pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 52.4% and pro-forma earnings per share grew by 36.4%.
Seeing as Bapcor is trading at a similar share price as before reporting, its trailing price/earnings ratio has improved significantly. It's currently trading at 22x FY17's earnings.
Improving margins
Bapcor management have a proven track record of improving the profit margins of the long-term businesses Bapcor owns and the new businesses recently acquired.
In its result Bapcor revealed that the gross margin increased from 44.2% to 45.7% and the EBITDA margin increased from 11.2% to 11.6%. If management can keep increasing the margins then that should be a strong boost for future growth.
Addressed the elephant in the room
Electric vehicles and automated vehicles are the two main concerns for Bapcor's future earnings.
Management went some way to address these concerns by analysing some of the recent car sales trends.
The current percentage of electric car sales compared to all car sales is very small, only 2.2%. In the latest quarter it actually decreased to 1% of sales. It will take a very long time before electric cars make a large percentage of the total cars on the road. These cars will need parts replacing too and Bapcor can step up in that area.
Foolish takeaway
Bapcor is predicting 30% growth of pro-forma net profit after tax for FY18 and has a grossed-up dividend yield of 3.53%. I think the current price is a very reasonable entry point for a business that could have a few years of strong growth to come.
