AutoCanada updated November 15, 2023

Autocanada is updated and rated speculative Buy at $19.35.

This has been a highly volatile stock. But I believe that the management that took over in 2018 are quite strong.

Markups or gross margins on vehicles have become highly volatile in the past two years or so as vehicle shortages have at times allowed for very lucrative markups. In the latest quarter just reported that was definitely not the case and the stock price got pushed down very significantly. Q3 earnings were lower due to the lower markups (stiffer competition) but also due to significantly higher interest rates.

AutoCanada has very significant debt to “carry” its inventory.

I’m concerned about the debt levels and that fact that interest costs will sop up more of the operating earrings. For the next two or three quarters, interest is likely to be higher due to higher rates year-over-year. Perhaps by Q3 2024 interest rates year over year will not be much higher.

Listening to the conference call I was surprised that that there were zero questions about the debt levels or interest rates.

On the call I was impressed that Paul Antony (executive Chair and I believe effectively CEO) laid out what seemed to credible plans for operating improvements. He also handled most of the questions.

Paul Antony appears to very ambitious and dedicated to growth and higher earnings.

I think the debt level here makes this stock somewhat speculative but it should continue to improve over the long term. The outlook for the next few quarters however is more likely an earnings decline than an increase it appears.

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