The report for AutoCanada is updated and rated Speculative Buy at $10.75.
This has been a very (very) disappointing investment since it was added to this site on July 14, 2015 rated Buy at $40.36. At that point it had already declined from a high of $90 per share very briefly reached on June 6, 2014.
This site has had great success with some growth-by-acquisition companies including Couche-Tard, Stantec, TFI International and Constellation Software. Auto dealers have always appeared to be some of the most prosperous looking businesses in any City or town. Overall, I thought AutoCanada had good potential and my rationale for rating the stock in the Buy range was provided in the report with each update.
But its concentration in Alberta proved very problematic as the oil price declined and Alberta went into recession. It also had a change of management when the founder / CEO left. Some other executives also left. More recently its heavy concentration of Chrysler dealerships proved to be a big drag as Chrysler sales have declined rather steeply even as auto sales in Canada were at a record. To top things off it now appears that its recent large U.S.A. acquisition was a huge mistake as they now realize they over-paid.
The share price has now declined to levels that I would never have guessed would occur.
So, what now?
The company is under completely new top management in the past couple of months. New management has made a large write off of goodwill (and equivalent) indicating that they vastly over paid for the U.S. acquisition and also to a far lesser extent many Canadian acquisitions. On an adjusted basis the earnings are still certainly positive resulting in an adjusted P/E of 8. And the shares are trading at only 62% of book value. The new management projects sharply improved results in the next 18 months.
Overall, at this point, the shares have hopefully finally bottomed out and there should be good upside potential over the next year if the new management is successful. So far, in just a couple of months this new management led by the Board chair (now effectively CEO) has already taken swift and decisive action. And they seem confident in their plans for material improvements.