5. Holley Inc. (NYSE:HLLY)
Number of Hedge Funds Holders: 20
Holley, Inc. (NYSE:HLLY) is one of the best small cap automotive stocks. It is a leading designer, manufacturer and seller of high-performance aftermarket products for car and truck enthusiasts and sells its products in the United States, Europe, China, and Canada. The company generates revenue through 5 business segments including electronic systems, mechanical systems, exhausts, accessories, and safety equipment. Holly, Inc. (NYSE:HLLY) employs an omni-channel distribution strategy to sell its products including Direct to Consumer (DTC), warehouse distribution, e-tailers, traditional retailers, and installer channels. The competitive edge of Holley, Inc (NYSE:HLLY) lies in its robust portfolio of iconic brands including Holley, MSD, Simpson, Flowmaster and more than 50 others, that allows the company to operate in major automotive aftermarket segments ranging from domestic muscle enthusiasts to safety and racing products.
HLLY is an investor’s favorite stock; it was held by 20 hedge funds in Q1 2024 with total stakes worth $21.7 million. Leucadia National is the top shareholder in the company, as of Q1, and disclosed a stake worth $8.4 million. During the first quarter of 2024, Holley Inc. (NYSE:HLLY) demonstrated its ability to navigate profitability through tough market conditions. The company experienced a decline of 7.9% in its net sales, with revenue dropping to $158.6 million. The decline in sales was mainly due to weak consumer demand and an overall softening of consumer environment. However, regardless of a decline in net sales, Holley, Inc. (NYSE:HLLY) was able to maintain robust margins, with gross margins at 32.8% and adjusted gross margins at 38.9% during the quarter. In terms of earnings, the company posted an adjusted EBITDA of 19.3% and also grew its free cash flow by $15 million year-over-year. The growth in free cash flow was mainly due to management’s efforts to optimize inventory and working capital. Moreover, the company is also working towards stabilizing its debt position, it not only reduced its debt by $15 million during the quarter but also indicated its exit from the covenant relief period by the end of the second quarter.
Is Holley, Inc. (NYSE:HLLY) a profitable investment?
It’s true that the company faced some headwinds in terms of decline in sales during the previous quarter and an overall softening consumer demand. However, what’s noteworthy is the company’s ability to drive profitability during challenging market conditions. The company has grown its revenue and levered free cash flow by 5% and 20% during the past 5 years. Moreover, management has been working on improving its product line-up during the previous quarter and is ready to introduce innovative products across all business segments. The full-year outlook by management also remains positive with net sales between $640 million to $680 million and adjusted EBITDA between $125 million and $145 million.
HLLY is currently trading at 15 times its forward earnings, at a slight premium to its sector. However, it still presents an attractive entry point for value investors because its earnings are expected to grow by 100% this year to reach $0.06. Moreover, over $41 million in cash and cash equivalents on the balance sheet can be used for growth. Analysts hold a consensus Buy opinion on the stock and their average price target of $7 implies an upside of 95% from current levels.
