Halfords is making significant progress; should you make an investment?

Growth at Halfords is being driven by a stronger emphasis on cars rather than bikes

Is investing a good idea right now?

Halfords (LSE:HFD) briefly profited from the assumption that everyone would start riding a bike during COVID. A lot of people were making life adjustments, like getting a pet, purchasing an exercise machine, or starting a new hobby.

After the lockdowns ended, many of these interests diminished, which led to a decline in the shares of the companies that catered to these industries.

The share price of Halfords has dropped by 50% since its all-time high in May 2021. However, it has recently begun to rise once more, and this time the growth may be sustainable.

Halfords, which sells about half of all bicycles sold in the UK, makes money by selling accessories and offering auto and bicycle repair services. It runs 92 commercial depots, 21 mobile hubs, 496 garages, and 370 stores throughout the UK and Ireland.

Watch the entire video here: Despite the fact that overall sales have increased steadilyby about 40% since 2021profitability has been much less stable because of increased expenses and bicycle overstocking.

Compared to 2021, normalized earnings per share are currently less than half as high.

Halfords introduces a fresh broom.

Fortunately, Henry Birch was appointed CEO of Halfords last year as a result of the company's issues. Birch has developed a turnaround plan based on three concepts.

Halfords has made a significant effort to increase margins in the near future by controlling expenses. Additionally, it has improved its digital platform, making it simpler for clients to schedule services and enrolll in recurring plans.

The most intriguing aspect of the new approach, though, is that Birch has been attempting to focus Halfords' business more on automobiles, which currently account for about 80% of sales.

He wants Halfords to concentrate on auto upkeep and repair. One explanation for this is that this division of the business has more room to grow than the stores because there are more opportunities for upselling, or providing customers with more expensive goods and services.

The division is more resilient to the economic cycle because it is much more difficult for drivers to put off necessary repairs than the purchase of accessories.

With last year's pre-tax loss turning into a comfortable profit in the year ending in April 2026, this approach appears to be working already. Gross margins have also improved, and like-for-like sales (those from current business units) are growing at a healthy rate. Halfords recently raised its profit forecast for the upcoming year.

In spite of this, the stock is still cheaply valued at 12 times 2028 earnings, which is less than the net asset value of the company.

Additionally, the shares have a very strong dividend yield of 4.4%. They also trade above their 50-day and 200-day moving averages and have risen 75% since May 1.

At 15 per 1p, go long at the current price of 232p. Set the stop-loss at 167p, resulting in a stop loss of 975.