Warning: Things Could Get Ugly for This Auto Stock in 2019

AutoCanada Inc. (TSX:ACQ) stock has been pummeled as auto sales suffered year-over-year declines for most of 2018.

| More on:

AutoCanada (TSX:ACQ) is an Edmonton-based company that operates car dealerships across Canada. Shares were down 51.8% year over year as of close on January 9. The company has faced internal and external challenges that have the potential to push the stock into single digits this year.

Last year, I’d warned investors on several occasions to steer clear of AutoCanada. One of the primary reasons for this bearish outlook was the performance of auto sales in Canada. Numbers began to slip in the beginning of 2018 and worsened year over year in the final months of last year.

DesRosiers Automotive Consultants said 114,289 vehicles were sold in December in Canada compared to 124,247 in the prior year. This represented the 10th straight month of declines in 2018. Passenger cars suffered a 12.1% drop in sales year over year and light trucks reported a 6.5% drop. Total light vehicle sales in 2018 came in at 1.985 million, below the record 2.039 million sold in 2017.

DesRosiers said that economists should expect a further 2-4% decline in 2019. The consultancy firm emphasized that these numbers were still positive when taking long-term performance into account. Light truck sales, which have also powered worsening sales in the United States, rose 0.6% in 2018. Passenger car sales fell 9.7% year over year.

A new report from Scotiabank on auto sales in December also painted a bleak picture. The report said that vehicle sales fell by 7.4% month over month in seasonally adjusted annualized terms. “We forecast Canadian auto sales to dip to 1.93 million units sold in 2019 amid a continuation of the Bank of Canada’s tightening cycle and muted job gains with the economy sitting near full employment,” the report concluded. Scotiabank also projects that U.S. vehicle sales will fall below 17 million in 2019. This would be the lowest total since 2014.

AutoCanada is expected to release its fourth-quarter results in March. In the third quarter, the company saw revenue rise 3.9% year over year to $866.9 million. New and used vehicle sales increased 3.8% and 24.8%, respectively, compared to the prior year. The board of directors endorsed a Go Forward Plan in late 2018, which included commitments to enhance AutoCanada’s Finance and Insurance offerings at dealerships, the creation of a new specialty finance division, and the disposal of non-performing assets. AutoCanada will also introduce reforms to increase the sale of used vehicles at its locations across Canada.

The company forecast that it would be able to achieve materially better results due to its Go Forward Plan, even in the face of negative macro-economic factors. AutoCanada currently boasts a quarterly dividend of $0.10 per share, which represents a 3.6% yield. The stock last boasted an RSI of 54, indicating it is not oversold, even as it is trading only $3 from 52-week lows.

AutoCanada’s internal reforms have yielded positive results in the third quarter, but broader weakness in the industry will continue to weigh on its performance in 2019.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Asset Management
Investing

2 Soaring Stocks to Hold for the Next 20 Years

These two stocks are poised to continue outperforming the broader equity markets.

Read more »

Hand Protecting Senior Couple
Retirement

These 2 Dividend ETFs Are a Retiree’s Best Friend

These two dividend ETFs could provide retirees with a diversified and stable income stream, while providing some price appreciation.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

Shopify: A Must-Have Growth Stock for Your TFSA Now (and the Next 10 Years)

Shopify (TSX:SHOP) stock isn't just a top growth company, it's a titan worth owning in your decades-long TFSA fund.

Read more »

Investing

Have $1,000? Here Are the Best Stocks to Buy Right Now

These TSX stocks have solid growth potential and will likely deliver above-average returns in the long term.

Read more »

cloud computing
Tech Stocks

Best Stock to Buy Right Now: Manulife vs CIBC

Want the best stocks? These two are certainly the best options. But which is the better buy?

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Earn $2,000 in Passive Income in 2025 With Less Than $51,000 in Savings

You can invest in Canadian high yield stocks via the Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY).

Read more »

Asset Management
Investing

Where Will Restaurant Brands International Stock Be in 1/3/5 Years?

Let's dive into where Restaurant Brands (TSX:QSR) could be headed over the near to medium term, shall we?

Read more »

profit rises over time
Tech Stocks

4 Reasons to Buy Constellation Software Stock Like There’s No Tomorrow

Constellation Software stock continued its climb upwards after recent earnings, and this only adds to its appeal.

Read more »