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Why the ARB Corporation Limited share price just surged 7% higher

ARB Corporation Limited (ASX: ARB) was one of the top gainers on the ASX200 on Wednesday, with shares up 7% to a multi-year high of $22.23, following the release of a positive market update.

ARB is a producer and distributor of accessories for four-wheel drive (4WD) and light commercial vehicles, a global player with operations in Australia, North America, Europe, Asia and the Middle East.

ARB’s sales revenue grew at an average compound rate of 10% over the past decade, nearing $400 million in FY17. The positive trend continued in the third quarter of FY18, with sales up 12% over the previous corresponding period thanks to a strong performance from all three ARB’s businesses: Australian aftermarket, original equipment manufacturing and export.

Export – which was the fastest growing segment with sales up 16% – now accounts for 28% of the group’s revenue. The expansion of the 4WD market in many parts of the world offers ARB a significant growth opportunity, but economic instability may affect operations in some foreign markets.

The domestic business is also strong and the company plans to open seven new ARB stores by mid-2019.

Dividends have grown steadily in recent years, but so has the stock price. ARB shares trade at 36x trailing earnings, with a dividend yield of just 1.6%.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB 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 Scott Phillips.

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