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This growth share could profit from falling new car sales

Australia’s falling house prices have been well reported. Sydney and Melbourne are both seeing their dwelling prices slowly drop month by month.

But, this can also have a knock-on effect to other industries such as new car sales. Homeowners feel wealthier when their homes rise in value. They feel more at ease spending when they have a large amount of equity in their house.

Sadly, the opposite is true too. When your wealth is falling you don’t feel like buying a new car as much. According to VFACTS, the motor industry’s statistics service, new Australian car sales fell 7.8% in July 2018 compared to July 2017.

With no end in sight for falling house prices, new car sales could also steadily fall. This wouldn’t be good for Automotive Holdings Group Ltd (ASX: AHG)AP Eagers Ltd (ASX: APE) and every other car dealership out there. Perhaps second hand car sales will take up the slack.

However, not every car-related business will suffer in a downturn. Bapcor Ltd (ASX: BAP) could be the way to profit.

Bapcor is Australia’s leading auto parts business with its Burson and Autobarn brands. Autobarn sells to the public whilst Burson supplies independent mechanics, it can deliver parts quickly when needed.

If people aren’t buying new cars they’re holding onto their current car for longer. The longer you drive the same car the more likely a part is going to break and need replacing. A new part is much cheaper than a new car.

Not only is Bapcor growing with more stores and higher profit margins but it could also achieve higher same store sales growth thanks to slowing new car sales.

Foolish takeaway

In the long-term electric vehicles may make things a bit difficult for Bapcor but it has plenty of growth left as it expands in Australia and it’s also opening stores in Thailand.

It’s currently trading at around 23x FY18’s estimated earnings, which I think is a very reasonable price to pay for a business growing profit at a good double digit rate each year.

These hot growth shares are also trading at attractive value for how much growth they may achieve in the coming years.

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Motley Fool contributor Tristan Harrison owns shares of Bapcor. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended Automotive Holdings 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 Scott Phillips.

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