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One FTSE 250 stock I’d sell and one I’d buy today

Best known for its WeBuyAnyCar.com brand, BCA Marketplace (LSE: BCA), formerly Haversham Holdings, is one of the UK’s largest used car retailers. And over the past five years, earnings have exploded as BCA has been able to use its size and scale to attract both buyers and sellers.

The business is also held in high regard for its tech, which has undoubtedly been a critical factor in its growth. Indeed, earlier in the year, one group of City analysts praised the company for “unique physical auction and data platform.

However, despite BCA’s “unique” operating structure, I reckon the firm’s growth has run its course. With this in mind, today I’m looking at a company that could be an excellent replacement for BCA in your portfolio.

Overvalued

At its core, BCA is fundamentally a used car retailer. While the company’s tech experience gives it an edge, it’s fortune ultimately depends on the state of the second-hand car market.

With this being the case, it seems odd to me that shares in BCA are currently changing hands for 18 times forward earnings. Peers Pendragon, Lookers and Marshall Motor Holdings trade at an average multiple of just 7!

It would appear the company’s “unique” data platform is the reason why investors are happy to pay such a hefty premium to be a part of the BCA growth story. City analysts are expecting the firm to report an earnings per share (EPS) increase of 67% this year, after growth of 51% last year. It’s hard to deny that this rate of expansion is impressive, but even after adjusting for growth, the shares look expensive. They trade at a PEG ratio of 2.

Put simply, BCA’s lofty valuation leads me to conclude that investors should stay away. If your’e looking for a replacement in your portfolio, I reckon Aggreko (LSE: AGK) could be worth spending some of your research time on.

Recovery gaining traction 

The past few years have been tough for this power solutions business. Falling oil prices, coupled with the end of lucrative long-term supply contracts, almost crippled the company. 

After hitting a peak of 109p in 2012, EPS have since slumped to 57p (fiscal 2017) thanks to rising costs. Over this period, profit margins have been cut roughly in half.

It now looks as if some stability has returned. During the first half of the year, pre-tax profit increased 8%, smashing City expectations. Revenue for the period rose 10%, putting the firm well on the way to achieving its full-year growth targets.

Both the City and management believe this is just the start of Aggreko’s turnaround. CEO Chris Weston thinks the group can achieve a return on capital employed (ROCE), a measure of profitability for every £1 invested in the business, in the mid-teens in 2020. ROCE was 11% during the first half of the year.

Unfortunately, after so many years of disappointment, analysts remain sceptical. The City is expecting no earnings growth over the next two years. Based on the company’s first-half numbers, I think this is a mistake. If Aggreko can prove its first-half figures were no fluke, I reckon the stock could undergo a substantial re-rating. Now could be the time to buy before the rest of the market catches on.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Pendragon. 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.