One of the best performers on the S&P/ASX 200 Index (ASX: XJO) in 2020 has been the ARB Corporation Limited (ASX: ARB) share price.
Since the start of the year, the 4×4 accessories manufacturer's shares have risen a massive 70%.
Why is the ARB share price rocketing higher in 2020?
Investors have been buying ARB's shares this year following its positive performance in FY 2020 and its strong start to the new financial year.
In FY 2020, ARB reported a 4.6% increase in total revenue to $467 million and a 0.3% lift in net profit to $57.3 million. This was despite its sales being materially impacted during April and May at the height of the pandemic.
Pleasingly, the company bounced back quickly from this and recently released a strong first quarter update for FY 2021.
ARB has achieved unaudited sales revenue growth of 17.7% for the first quarter. This compares to 5% growth during the first quarter of FY 2020.
Things were even better in respect to its profits, with the company's profit before tax during the first quarter coming in at $29.7 million.
While no comparison was given for the first quarter of FY 2020, it is almost certainly a significant increase on the prior corresponding period. After all, during the entire first half of the previous financial year, ARB recorded a profit before tax of $34.4 million.
This means the company has already achieved 86% of FY 2020's first half profit before tax after just one quarter.
And although management advised that there is too much uncertainty for it to provide guidance, it appears confident that a strong first half profit result is coming.
It commented: "While the short to medium term outlook for the Company is positive, the future economic environment remains very uncertain and no guidance can be given for the remainder of the financial year."
Should you invest?
I think ARB is a quality company, but at 32x estimated FY 2021, I feel its shares are a little on the expensive side now. Especially given the uncertainty around how sustainable its sales growth is at present.
In light of this, I would suggest investors keep their powder dry and wait for a better entry point.
