The Halfords share price is up 325%: should I buy now?

The Halfords share price has given very good returns in the past year. Royston Roche discusses the company’s prospects.

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The Halfords (LSE: HFD) share price has had a very good run. Its shares rose about 325% in the past year. The company has benefitted from the boom in cycling during the lockdown.

The question that arises to my mind is – will the upward trend continue post-lockdown? So, I am looking into more details to see if I should include the stock in my long-term portfolio.

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The company’s fundamentals

Halfords’ financial results have been strong this year. The company is seeing growth from the increased use of bicycles during the lockdown. Cycling like-for-like sales grew by 43% year-on-year in the first seven weeks of the fourth quarter. I think that more and more people will continue to cycle even after the pandemic. 

The Halfords share price is currently trading at a price-to-earnings ratio of 19. This is higher than the five-year average of 11.7. However, when we compare it to the general market, it does not appear to be overvalued. The price-to-sales ratio is 0.63, slightly higher than the historical average of 0.50. So, valuation-wise, even though the stock had a stellar return it is still trading at a decent price, in my view.

I think the company has a number of positive factors. It should benefit from the ageing of UK cars, and from having stores in good locations. About 82% of halfords.com online orders are clicked and collected in stores. The company has a wide range of options for providing service to its customers. With the increasing use of mobile vans to reach the customers, it will further increase the confidence of its customers that help is at hand if there is a breakdown.

The company expects full-year pre-tax profits of £90m to £100m – compared to £56m for the previous year. The use of technology and move to online sales will further help the company to cut costs in the future.

Halfords might also benefit from sales and servicing of e-bikes and electric vehicles. The company has been hiring and training technicians in this field due to the expected strong demand in this field.

Risks to consider in the Halfords shares

The company has benefitted an essential business. Its profits this year are good due to strong bike sales. However, with the easing of lockdown people will get back to work. Gyms and other recreational centres may slow down the sales of bikes.

The high cost of operating retail stores had reduced the company’s profits in the years leading to the Covid-19. This is evident in the Halfords share price which is down around 10% over a five-year period. The rise of online and discount stores is further increasing the competition in the car parts and bikes business. 

Final view

The company’s financial position has improved a lot during the last year. However, I am not a buyer of the stock today. I would like to watch the company’s performance post easing of lockdown before I decide whether to include the shares in my portfolio. 

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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