The Bapcor Ltd (ASX: BAP) share price has been a disappointment for investors over the past year in trading flat, while the wider S&P/ ASX200 Index (ASX: XJO) has managed to deliver a modest gain.
However, according to the professional investors at Yarra Capital Management, Bapcor's recent underperformance may be an opportunity to pick up shares in the automobile parts distributor at a discount.
Bapcor disappointed investors in February by guiding for it to hit the very bottom end of its fiscal 2019 profit growth guidance between 9%-14% on the back of some tough conditions in Australia's automobile markets.
Still 9% profit growth is not the end of the world for investors and delivering this does not look much of a push given its first-half profit result for the six months ending December 31 2019. Generally, its management team under CEO Daryl Abotomley has a track record of under promising and over delivering as a listed company as well.
Yarra opines on the shares: "We believe BAP is well positioned to maintain defensive low- teens earnings growth into the medium to long term, which is currently not reflected in the share price (with the company now trading on 16.5 times forward earnings). After several years of undertaking acquisitions, BAP is now in a strong position to optimise its business structure by rolling out new stores, enhancing existing stores (shifting to corporate owned stores provides more control) and implementing cost reduction initiatives."
Bapcor is operating in tough conditions as shown by the disappointing results from car dealerships AP Eagers Ltd (ASX: APE) and Automotive Holdings Group Ltd (ASX: AHG). Therefore it's possible things get worse before they get better, but Yarra might have found a good medium-term buy here.
