The Bapcor Ltd (ASX: BAP) share price could be a good one to focus on, with possible growth potential.
If you haven't heard of Bapcor, it is a large auto parts business in Australia, New Zealand and, increasingly, Asia. It has numerous brands including Burson and Autobarn.
There may be a few good reasons to consider the company for the long-term at the current Bapcor share price:
Store network rollout
The company has over 1,000 locations across Australia, New Zealand and Thailand. Expanding this number is key part of the future plans to drive profit.
At June 2021, it had 200 Bapcor Trade locations. It's wanting to expand this by another 10 to 12 per annum, whilst also relocating or refurbishing another five or six stores per year.
Bapcor New Zealand had 73 locations at June 2021. Management wants to add two to three locations per annum, whilst also relocating or refurbishing another three to five stores per year.
Within the retail segment, it has 133 Autobarns and wants to increase that number by around 12 per year, whilst relocating or refurbishing another eight stores per annum.
Looking at its specialist wholesale segment, it has 17 light commercial locations, 32 heavy commercial locations and 17 electrical locations. For each of those, it wants to add another five locations per year.
When added to same store sales growth, a bigger store network can help the bottom line quite a bit. In FY21, Bapcor Trade saw same store sales growth of 14.3%, whilst Autobarn saw same store sales growth of 22.2%.
It's also expanding in Asia with Burson in Thailand and its investment in Tye Soon.
Growing profit margins
Higher profit margins are what allows a business to grow profit faster than revenue. Investors often like to use profit as a way to measure what the Bapcor share price should trade at.
There are a number of different areas that Bapcor is working on to improve margins.
One is the scale benefits of being a large business and having a bigger network. That comes with fixed costs being shared among more locations, as well as stronger buying power with suppliers.
The ASX share is looking to grow profit by supplementing its sales with Bapcor own brand products, which comes with higher margins.
It's investing in its supply chain, such as its new Victorian distribution centre. Bapcor is also working on a Queensland distribution centre as well. The company has also been looking to improve its transportation and inventory management as well.
In FY21, Bapcor saw its different profit levels rise faster than revenue. Total revenue increased 20.4% to $1.76 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 28.8% to $280 million, earnings before interest and tax (EBIT) increased 39% to $201 million and net profit after tax (NPAT) grew 46.5% to $130 million.
Bapcor share price valuation
One reason that investors may like Bapcor is the valuation.
At the current Bapcor share price, it is valued at around 20x FY22's estimated earnings.
Looking further ahead, the Bapcor shares are priced at 18x FY23's estimated earnings.
