March 22, 2017

On Wednesday, the S&P 500 and Toronto each rose 0.2%.

AutoCanada was down 2.4%. I find it interesting to see how negatively the market has reacted to the declines in its revenues in 2016. The company reports that the prices being asked when if offers to buy new additional auto dealers have not changed very much in the past few years. The share price of AutoCanada has been far more volatile on both the upside (the period before mid 2014) and on the downside (the period after mid 2014) than is the case for the value of the underlying dealerships. In theory, this kind of share price volatility can be highly beneficial to investors who can buy dealerships via AutoCanada when the price is low versus the value of dealerships in direct purchase transactions and Sell if the AutoiCanada price is too high relative to the market value of the underlying dealerships. There is reason to pay some premium for AutoCanada for its ability to grow through acquisitions and the synergies it creates that way.The difficulty is in recognizing how the AutoCanada share price compares to the value of the underlying dealerships. The best (although imperfect) estimate we have of that is likely the book value. Currently AutoCanada is trading at a 33% premium to book value. That does not seem excessive and is certainly far more attractive than was the case when it traded at 3 times book value or more as it did in 2014.