Today I'll be discussing the outlook for three companies providing motoring services for the nation's insatiable appetite for cars, vans and bikes. Which of these mid-cap FTSE 250 shares is most likely to turbo-charge your portfolio in the years ahead?
New kid on the block
Classified advertising business Auto Trader(LSE: AUTO) is the UK's largest digital automotive marketplace and sits at the heart of the country's vehicle buying process. The company is a relative newcomer to the market having had its stock market debut in March last year, before joining the mid-cap FTSE 250 index a couple of months later. The firm's shares rocketed immediately after the launch rising from the IPO offer price of £2.35 to highs of £4.55p at the end of last year. The share price has since dropped back to below £4, and this year's weakness could be seen by some as a buying opportunity.
The Manchester-based business has performed well in its first full year as a listed company, with pre-tax profits climbing to £155m in the year to 31 March, from £10.9m the previous year, and revenues up 10% to £281.6m. City forecasts predict a healthy 14% rise in profits this year, with another 14% improvement estimated for the year to March 2018. But the shares are trading at 27 times earnings for this year, falling to 23 times for FY2018, which in my opinion is still too expensive. I'd wait for further weakness in the share price before taking the plunge.
Growth and income
Automotive retailer Halfords(LSE: HFD) revealed a slightly disappointing set of figures for the first quarter of its financial year. It saw a decline in like-for-like revenues, and its cycling division struggling due to the earlier timing of Easter and poor weather in April and late June. Furthermore, the company has warned that the weakness in sterling could affect full-year profits to the tune of £3m, with broker consensus forecasts suggesting a 7% decline in earnings for the year to March 2017.
The Redditch-based retailer has suffered at the hands of the market this year, with shares losing a third of their value over the past 12 months. To me the shares look oversold, trading at just 11 times forward earnings, and a healthy dividend yield of 4.8% covered almost twice by earnings. At current levels Halfords provides attractions for both income seekers and growth investors alike.
On the road to recovery?
Meanwhile the AA(LSE: AA) said that it has increased sales of new memberships in recent months and that Brexit will have a minimal impact on its business. The UK's most popular breakdown cover provider has suffered from declining profits in the last three years, but the business could soon be on the road to recovery, with analysts' consensus forecasts predicting a 12% rise in earnings by January 2018. At around £2.70, the AA's shares are trading well below their 2015 peak of £4.31 and could be a good buy ahead of interim results next month.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Auto Trader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.