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Why big-name brokers are backing speculative small cap MotorCycle Holdings Ltd (ASX:MTO)

Wilsons has joined Morgans in slapping a buy rating on motorcycle dealership operator MotorCycle Holdings Ltd (ASX: MTO) with Wilsons placing a 12-month price target of $4.29 on its shares.

Morgans issued a buy rating on this underperforming small cap back in February, despite its disappointing results announcement, as the figures still exceeded the broker’s expectations.

Wilsons buy rating is based on MotorCycle Holdings FY18 guidance EBITDA in the range of $19 million and $21 million – compared to a consensus of $21.9 million and Wilsons’ own forecast of $21.5 million.

Auto stocks as a whole have been performing well of late, with shares in four-wheel drive accessories company ARB Corporation Limited (ASX: ARB) hitting a 52-week high on June 21 when its share price reached $23.50.

Shares in GUD Holdings Limited (ASX: GUD) also shot up earlier this month – reaching a 52-week high on June 20 when its share price hit $14.40 – off the back of news it would expand its automotive segment with the acquisition of Disc Brakes Australia Pty Ltd.

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Motley Fool contributor Carin Pickworth 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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