Looking for a 100% gain? One broker says try this small-cap ASX car dealer

Shares in Peter Warren Automotive Holdings Ltd (ASX: PWR) are trading not far off their 12-month lows at the moment, which the analyst team at Jarden says offers an opportunity to buy in.

Small-cap ASX shares looking cheap

The Jarden team has significantly reduced its share price target on the company, from $2.50 to $1.55, but this is still well above the current share price of 76 cents.

This follows Peter Warren earlier this week issuing a downbeat trading update.

The company said:

Following a significant deterioration in trading conditions over recent weeks, and with the outlook for May and June – which typically represent a large proportion of the Company’s annual result – subdued, Peter Warren expects underlying profit before tax (PBT) for FY26 to be in the range of $12m to $15m. This substantial reduction, following a solid first half growth, predominantly reflects intense pressure on new car trading margins.

This was caused by a rapid shift in customer demand, the dealership said, with “new car buyers … favouring smaller, more fuel-efficient vehicles and fewer high margin vehicles often purchased with accessories”.

There were also more new brands competing for market share, and the high demand for some models had led to a backlog of orders, the company said.

Worst not yet over for small cap ASX share

The Jarden research note on Peter Warren said there could be more pain to come.

As the analyst team said:

Feedback continues to suggest that, at a headline level, new car demand has remained relatively resilient (obviously mix has changed under the surface). However, with broad expectations of house price declines to come, we note new car sales historically have not performed well in this environment. The 2017-2019 cycle of national house price declines of over -8% coincided with new car sales declining of -11% over the same period (peak to trough annual). Combined with a shift away from higher priced, higher margin ICE vehicles and a more promotional price environment (and more finance promotions), we have taken a conservative stance on FY27 earnings.

The Jarden team noted that Peter Warren owns land and buildings worth more than the company’s entire market capitalisation.

They added that they believed that the company’s particular brand mix had played a significant part in the profit downgrade.

They added more broadly on the sector:

Commentary points to several broader potential headwinds worth watching for the industry, including new vehicle competition and associated gross margin compression (particularly in the ICE side of the market), OEM finance promotional activity, and continued shortages of supply of in-demand NEV (new energy vehicle) models.

Peter Warren is valued at $129.2 million.

The post Looking for a 100% gain? One broker says try this small-cap ASX car dealer appeared first on The Motley Fool Australia.

More reading

• Are Woolworths shares a good buy for passive income?
• Which tech share is the ‘most defensively positioned software business’ on the ASX?
• 3 reasons to buy Zip shares today
• Why’s the ASX 200 falling today despite another tech rally?
• Brokers rate these 5 ASX 200 shares as a sell!

Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.