The ASX small-cap stock MotorCycle Holdings Ltd (ASX: MTO) looks like an excellent opportunity to me at the current share price.
It describes itself as the leading motorcycle dealership and accessories group in Australia. It sells new motorcycles, used motorcycles, accessories and parts, finance, insurance and mechanical protection plans and servicing. The company also has a small presence in New Zealand.
In October 2022, it acquired Mojo Group, one of Australia's largest importers and wholesalers of motorcycles, genuine spare parts and accessories. This helped the business by expanding its existing product offering (including scooters), increasing its warehouse capacity and expanding its distribution network.
There are a few reasons why I think it's an excellent buy today.
Image source: Getty Images
Acquisition
The ASX small-cap stock is regularly increasing its market share, partly through acquisitions. The latest one was announced near the end of June, called Peter Stevens and Harley-Heaven, which includes their brands and the online businesses of both. Settlement will occur on a store by store basis, which is to be aligned with motor dealer licensing regulatory approvals in each state, over July.
This acquisition is one of Australia's leading motorcycle retail groups and the cash price is expected to be in the range of $7 million to $9 million.
Motorcycle Holdings described the acquisition as "transformative" as it allows it to enter the markets of Perth and Adelaide where it currently doesn't operate.
The CEO also said the deal provides "exceptional combination of scale, profitability, and strategic positioning", allowing it to accelerate growth, grow its retail digital presence and consolidate market leadership.
Rising profit margins
I like seeing an ASX small-cap stock grow its margins as this allows the company to grow profit faster than revenue.
In the FY25 half-year result, revenue grew 12% to $328 million, underlying operating profit (EBITDA) grew 20% to $26.2 million and net profit after tax (NPAT) jumped 43% to $9.4 million.
If the trend of rising profit margins continue, then the company could see very pleasing profits with improving operating leverage.
Conditions to improve for the ASX small-cap stock?
Motorcycle retailing may not be the most discretionary category in Australia, but I expect that the two RBA rate cuts we've already seen may help the company's sales during FY26.
Plus, further rate cuts are predicted over the next 12 months, which could boost consumer spending further. This could also increase the valuation of the ASX small-cap stock.
Large dividend
I'm hopeful of capital gains, but the returns delivered by the cash dividend payments could also be very compelling for investors looking for good total returns.
The last two dividends declared by the business came to an annual total of 15 cents per share. At the current Motorcycle Holdings share price, it offers a grossed-up dividend yield of 6.4%, including franking credits.
If the business can return to the same payout as the COVID-19 years, it would be a grossed-up dividend yield of approximately 8.5%.
Overall, I think the business offers everything that investors could want from an ASX small-cap stock.
