Rising Vehicle Longevity And Remanufacturing Will Expand Market Opportunities

Key Takeaways

• Growth in older vehicles and nondiscretionary repairs is supporting strong sales, cash flow, and expanding MPAA's market opportunities.
  
• New product expansion, operational efficiencies, and demand for remanufactured parts are expected to boost margins and secure long-term revenue stability.
  
• The shift to electric vehicles, evolving market channels, operational complexity, and industry risks threaten sustained growth and profitability for Motorcar Parts of America.

Catalysts

Manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts in the United States.

• Ongoing increases in the average age of vehicles on the road and the expansion in total vehicles in use, particularly in North America and emerging markets like Mexico and Latin America, are fueling sustained organic growth and expanding MPAA's addressable market, directly supporting top-line revenue and long-term earnings potential.
  
• Rising demand for nondiscretionary replacement parts, as consumers keep vehicles longer and repairs cannot be deferred, has enabled MPAA to achieve record net sales and strong cash flow performance-trends expected to persist and drive both revenue and cash generation in future periods.
  
• Continued investment in expanding brake and wheel hub product lines, combined with accelerating market share gains and ramp-up of new high-margin offerings such as brake calipers and pads, positions MPAA for material revenue growth and gross margin enhancement over successive fiscal years.
  
• Strategic operational improvements, including increased production efficiency, cost reduction initiatives, and greater localization of supply chain (especially outside China), are expected to yield ongoing improvements in gross and net margins, as reflected in current and reiterated earnings guidance.
  
• Global growth in the sustainability and repair economy, alongside rising regulatory and consumer focus on remanufactured parts, strengthens demand for MPAA's core remanufactured products and supports long-term revenue stability and higher-margin product mix.

Motorcar Parts of America Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Motorcar Parts of America's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $49.5 million (and earnings per share of $2.45) by about August 2028, up from $1.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, down from 165.8x today. This future PE is lower than the current PE for the US Auto Components industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 2.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.75%, as per the Simply Wall St company report.

Motorcar Parts of America Future Earnings Per Share Growth

Risks

• Accelerating adoption of electric vehicles (EVs)-which have fewer rotating electrical and brake replacement needs-could significantly erode long-term demand for Motorcar Parts of America's (MPAA) core internal combustion engine aftermarket products, ultimately limiting revenue growth as the vehicle fleet transitions.
  
• Persistent exposure to tariff risks and geopolitical volatility, even as cost pass-throughs and supply chain localization are discussed, could increase input costs and cause unpredictable fluctuations in margins and earnings when mitigation initiatives fall short.
  
• Heavy reliance on maintaining and growing market share in traditional hard parts and brake categories exposes MPAA to risks from direct-to-consumer sales, e-commerce platforms, or industry consolidation, which could compress both revenues and pricing power over time.
  
• Complexity of managing multiple geographies and new business lines (like Mexico expansion and diagnostic product rollout) heightens execution and inventory management risk; missteps could increase working capital needs, impact cash flow, and increase operational inefficiencies.
  
• Increasing vehicle reliability and extended repair intervals, combined with potential customer concentration risk in the professional installer segment, may dampen long-term growth opportunities and result in revenue and earnings headwinds if customer loss or market dynamics shift.

Valuation

• The analysts have a consensus price target of $18.0 for Motorcar Parts of America based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $929.5 million, earnings will come to $49.5 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of $14.2, the analyst price target of $18.0 is 21.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.