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Why the Eagers Automotive (ASX:APE) share price is on watch today

asx share price on watch represented by young man looking intently through magnifying glass
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The Eagers Automotive Ltd (ASX: APE) share price is one to watch in early trade today. Shares in the Aussie car retailer could be on the move after the company released a trading update late on Wednesday afternoon.

Why is the Eagers Automotive share price on watch?

Eagers provided some good news to investors after Wednesday’s market close. The company released a trading update for the twelve months ended 31 December 2020 – the first full year of trade for the automotive group.

Eagers Automotive was formed when AP Eagers merged with Automotive Holdings Group in late 2019.

Eagers expects to report an underlying operating profit before tax from continuing operations of $209.4 million for 2020. That would represent a 108.6% increase on 2019’s $100.4 million figure.

Wednesday’s announcement was the second profit guidance upgrade in just six weeks for Eagers. The previous update had flagged guidance of $195 million to $205 million for 2020. The Eagers Automotive share price jumped to a new all-time high following that announcement on 11 December.

Management said the improved profit result compared to guidance had been delivered by strong performance in both its car and truck retailing businesses.

Why is Eagers’ business performing well?

The coronavirus pandemic has proved to be something of a positive for Eagers’ business. Used car and other vehicle markets have been hot with strong sales in the past year or so.

That’s largely come on the back of less economic impacts than anticipated as well consumers turning away from public transport during the pandemic. Strong government stimulus programs such as JobKeeper and early access to superannuation have also helped to increase many Aussies’ cash balances.

That has meant strong demand for used cars, trucks, motorcycles and boats which has boosted the Eagers Automotive share price higher. 

In fact, shares in the Aussie car retailer are up 46.4% in the last twelve months. It’s been a similar story for rival Ltd (ASX: CAR) in 2020.

The Carsales share price has climbed 86.3% since the bottom of the March bear market compared to a 356.5% gain for Eagers Automotive over the same period.

The S&P/ASX 200 Index (ASX: XJO) closed down 0.7% at 6,780.60 points on Wednesday afternoon.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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