Is it time to buy shares in this retailer with double-digit earnings growth?

The share price of automotive parts distributor Bapcor Ltd (ASX: BAP) has fallen 21% from its record high of $7.85 in early September. Despite the share price decline over the last couple of months, the company’s growth thesis remains intact with double-digit earnings growth expected for both FY19 and FY20.

The recent turmoil on global equity markets has provided investors with a more reasonable entry point into one of the best retailers on the Australian share market. The defensive nature of Bapcor’s business means it is not expected to encounter the tough trading conditions forecast for discretionary spending focused retailers such as Harvey Norman Holdings Limited (ASX: HVN), JB Hi-Fi Limited (ASX: JBH) and Myer Holdings Ltd (ASX: MYR).

Growth story continues

Bapcor delivered another solid operational performance in FY18 with growth across all the company’s segments. In FY18, revenue from continuing operations increased 22% over the prior corresponding period to $1,236.7 million.

The company continues to benefit from its operating leverage as EBITDA margins were up 50 basis points to 12.1% in FY18. As a result, EBITDA jumped 27.7% to $150.0 million. Bapcor’s bottom line outgrew its top line with proforma net profit after tax from continuing operations increasing 31.6% to $86.5 million and proforma earnings per share growing by 27.0% to 30.99 cents.

Foolish takeaway 

Bapcor reaffirmed its FY19 outlook at its AGM last month. The company expects continued revenue and profit growth in FY19 with net profit after tax forecast to increase between 9% and 14% over FY18. Using the midpoint of guidance, investors can expect Bapcor to generate 34.55 cents of earnings per share in FY19. The consensus estimate from analysts for FY19 currently sits higher than the midpoint at 35.02 cents per share.

At Bapcor’s current price of $6.15, investors would be paying around 18 times forward earnings to own shares in the company. The company is currently trading at a discount relative to its average p/e of 20 over the last 3 years.

Bapcor delivered one of the best operating results in the retail sector in FY18. The business is expected to continue to grow earnings at double-digit rates which makes it one of the more promising buy and hold investment opportunities on the Australian share market. If the company can continue to grow earnings at double-digit rates than today’s price at 18 times forward earnings should represent good value as earnings ultimately drive share prices over the long-term.

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Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. 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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