Yesterday, Bapcor Ltd (ASX: BAP) shares cratered more than 30% on an unfavourable trading update.
Bapcor is Asia Pacific's leading provider of vehicle parts, accessories, equipment, service, and solutions. It operates in the automotive aftermarket, and distributes parts and accessories through various channels.
At the time of writing, Bapcor shares are down 20% for the year to date.
Investors may be wondering whether this is an opportunity to buy in the dip, or whether the shares have further to fall.
Let's investigate.
What happened?
Yesterday, as reported by The Motley Fool's Bernd Struben, Bapcor shares were deep in the red.
This was triggered by the release of an underwhelming trading update.
FY25 revenue is expected to be down 1.4% compared to FY24. Bapcor's Trade segment was the only business to achieve year-on-year revenue growth, increasing 1.4%.
Management described the company's second-half trading performance as "below expectation with weaker sales results".
Should investors buy in the dip?
Yesterday, Macquarie Group Ltd (ASX: MQG) released a research note on Bapcor shares after reviewing its latest update.
Despite the stock falling significantly, Macquarie does not see this as an opportunity.
The broker downgraded its recommendation from outperform to neutral.
Macquarie also decreased its 12 month price target from $5.85 to $3.80. This is at the bottom end of between 10 and 12 x EV/EBIT valuation range, according to the broker.
Given that shares are currently changing hands for $3.70, this suggests they will be only slightly higher in 12 months time.
When downgrading its rating, the broker said:
Given the limited details provided in the trading update on segment performance and outlook trends, we have lower conviction in our forecasts and await further information at the FY25 results.
What should investors buy instead?
Investors looking for opportunities in the automotive sector have several better options, according to Macquarie.
In its 22 July report, Australian Automotive Sector, the broker named its 3 top picks in the Australian automotive sector.
These were Eagers Automotive Ltd (ASX: APE), ARB Corporation Ltd (ASX: ARB), and Amotiv Ltd (ASX: AOV).
All three companies have been assigned an outperform rating.
Macquarie's price target for Eagers is $20.60.
Meanwhile, a price target of $43.70 has been placed on ARB Corporation.
As for Amotiv, that has been given a price target of $10.90.
Investors might want to consider swapping their Bapcor shares for one of these three options today.
