ARB Corp Ltd (ASX: ARB) $18.25

ARB surged following its FY26 result, and optimistic FY27 outlook, covered here, though bearishness quickly resumed – the share price has more than halved over the last two years. The stock has endured a brutal 12 months, materially underperforming both the ASX 200 and Consumer Discretionary sector (-19.5%). The decline has been driven by a combination of weaker 4×4 vehicle sales, January’s profit warning and a significant reset in earnings expectations, with forward EPS falling around 39% from $1.37 to $0.84. At the same time, investors have become far less willing to pay a premium for those earnings, with ARB’s forward P/E contracting from around 29x to 18x—a painful combination of earnings downgrades and multiple compression.

• The 12-month decline was driven by roughly equal contributions from EPS cuts and P/E compression.

As we touched on before there have been some tentative signs of improvement, with ARB’s FY26 result better than feared, with 2H profit before tax returning to modest growth after a difficult first half, while improved Toyota vehicle supply should provide some support into FY27. However, OEM sales fell 27% in FY26, and earnings expectations were cut further following the result, quickly unwinding much of the initial +14% relief rally. After such a dramatic de-rating, expectations are clearly much lower, and ARB now needs improving vehicle volumes and a sustained recovery in earnings to demonstrate that the worst is behind it.

With ARB trading more than 30% below its 2-year valuation metrics, there is clear room for a turnaround for this distributor of 4×4 accessories and off-road equipment.

• We like the risk/reward into new lows around $16.50, for a potential sharp 40% rally – we hold ARB in our Emerging Companies Portfolio.