The Bapcor Ltd (ASX: BAP) share price could be a good one to look at today.
If you haven’t heard of Bapcor, it’s an auto parts parent company that owns a variety of businesses including Autobarn and Burson.
There are a number of reasons why I like it:
Excellent capital allocator
The leadership of any business has to decide where to put their capital.
Do you hold more of it to increase the strength of the balance sheet?
Can you use some of it to make attractive, well-priced acquisitions?
Is it possible to pay shareholders a growing dividend without hurting the growth of the business?
Bapcor has been great at finding those bolt-on acquisitions that will improve the strength, diversification and growth of the business at a good price. Truck parts and a stake in Asian business Tye Soon have been two of the most recent uses of money.
It has also been increasing its dividend for investors for several years in a row since it listed.
Growth
Bapcor has been growing over the long-term. Not only has it made some very smart acquisitions, but the organic growth of the key Burson business has been truly impressive.
Remember, Burson is the business that predominantly supplies car mechanics with the parts they need from a wide range of suppliers.
Burson has been consistently growing its same store sales as well as growing its EBITDA margin (EBITDA explained). That means that each store is more profitable each year. Bapcor has plans to expand the Burson network by adding dozens more across the country. That should increase the economies of scale even more.
I’m very intrigued to see how much Burson can grow in Asia where it has set up a handful of Bursons that are making a few million dollars of revenue. It could make over a hundred million dollars of annual revenue in Asia over time if it keeps expanding the network.
Plus, the retail sales at Autobarn are booming right now, which is helping drive profit higher.
Bapcor share price valuation
What price we pay for an investment is going to have an important impact on the returns we get over time.
The Bapcor share price is currently elevated, as most shares are, but it’s valued at a lower price/earnings ratio compared to many other ASX growth shares that are delivering good growth. I think that makes it attractive in my opinion.
The last Bapcor share price puts it at 20 times the 2021 financial year’s estimated earnings according to CommSec. That’s quite reasonable.
