Stock of the Day / Stock of the day: ARB Corporation (ARB)

Key points:

ARB (ASX:ARB) shares hit three-year lows after disappointing earnings guidanceGrowth and margin pressures blamed on weak Australian dollar and high inventoriesMichael Wayne highlights fading growth momentum and negative earnings trendsAnalysts recommend avoiding the stock, noting better opportunities elsewhere

Shares in ARB (ASX:ARB), the specialist in aftermarket four-wheel drive equipment, have plummeted to a three-year low after the company forecast lower first half earnings. ARB reported a 1% fall in total sales revenue to $359 million and forecast FY26 underlying profit of $58 million, representing a decline of 16% on FY25. Two key challenges are identified: slimmer gross margins, largely due to continued weakness in the Australian dollar, and persistently high inventory levels. ARB is also facing operational headwinds in its US business.

Michael Wayne from Medallion observes that ARB, once a market darling due to its steady growth and strong position in the aftermarket space, is no longer demonstrating the momentum investors had come to expect. Wayne sees the business as having a solid balance sheet and strong vertical integration but notes that both revenue and earnings growth have noticeably stagnated, with pressure from weaker margins and unfavourable currency shifts. Recent earnings trends lead to a negative outlook for short-term growth.

Wayne ultimately places ARB in the 'too hard basket', citing little market tolerance for companies missing expectations and suggesting that there are currently more appealing opportunities elsewhere, even if ARB remains a fundamentally sound business.