What happened
Shares of Holley (HLLY 6.06%) soared as much as 32% on Tuesday after the stock received a pair of upgrades from Wall Street. It has been a difficult year for the automotive aftermarket specialist, but analysts appear to believe the worst is finally behind it.
As of 11:34 a.m. ET, the stock was up 22%.
So what
Holley is an auto parts manufacturer that specializes in modifications and other products for car enthusiasts who like to customize their vehicles. It is a niche market but can be quite lucrative, and Holley is a relatively large player.
But its shares have lost more than half of their value in the last year, falling in July 2022 after the company reported disappointing results and cut its full-year guidance. Initially it was supply chain issues to blame, but investors have also worried that rising interest rates and economic uncertainty would leave consumers with less money for customizations and other nonessential purchases.
On Tuesday, analysts at both Bank of America and JP Morgan appear to have given the "all clear" sign. BofA upgraded Holley shares to buy from neutral and increased its price target to $6 from $3.25. JP Morgan, meanwhile, upgraded the stock to overweight from neutral and set a $7 price target.
Bank of America cited an uptick in traffic at Holley's website and the sites of resellers, concluding there is upside to revenue expectations, and said the company's efforts to cut costs should help the bottom line. JP Morgan also believes there could be upside to both 2023 and 2024 revenue guidance and thinks the launch of new products should help margins.
NYSE: HLLY
Key Data Points
Now what
Holley has an established customer base and a steady track record and seems like a good candidate to get off the mat at some point. But investors need to be careful rushing in now. The stock has now more than doubled in the last six months, meaning that a fair bit of the potential upside is already priced in. And if the analysts were early with their calls and second-quarter results don't beat estimates, there is some downside risk.
For those willing to stomach the potential volatility up ahead, Holley is still trading at less than half its price from a year ago. It might not get there overnight, but the company appears to be heading in the right direction.
