Business & Investment

Why Auto Canada’s inventory surged 135% in a year

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AutoCanada (TSX: ACQ) Inventory has recently undergone a minor correction phase. Stock prices have so far lost nearly 9% of their value in late 2021 after consistently rising for the fifth straight quarter. Despite this amendment, ACQ shares were trading at a solid 135% rise last year as of October 5. Before we look at whether ACQ stocks are still worth buying, let’s look at some of the key factors that may have driven these significant rises.

AutoCanada Stock Rally

Auto Canada is a Canadian car dealership. In addition to maintenance and collision repair services, we offer a wide variety of automotive products and services, including new and used cars. Currently, the company operates 66 franchise dealers of several top automotive industry brands in Canada and the United States. However, most of the revenue still comes from the domestic market. By 2020, Canada accounted for nearly 89% of total revenue, with the rest coming from the US market.

Before the pandemic stage, Auto Canada’s financial growth was accelerating. However, the sharp drop in new car demand has had a major impact on last year’s financial growth trends. On the positive side, in the second half of 2020, the surge in demand for old cars and high expectations for a recovery in demand for new cars maintained investor confidence.

Its decent financial growth trends, recent acquisitions to expand its business, and expectations of a sharp recovery in sales could be three main reasons why Auto Canada shares had strong positive returns in the triple digits last year. I have.

Are ACQ Stocks Worth Buying Now?

The ongoing chip shortage is negatively impacting car sales and the car industry. This temporary issue may not affect the long-term car sales outlook, but it certainly could undermine Auto Canada’s business growth in the medium term. This is the first reason why investors are not encouraged to buy Auto Canada shares right now.

Investors should be aware that while AutoCanada’s rate of return is gradually increasing, it is still very low. In the June quarter, the company report Adjusted net profit margin of 2.8% from 2.1% in the previous quarter. I can’t expect a very high rate of return from a car dealership, so I’m not going to completely blame Auto Canada for its low rate of return. However, if you have the option of investing in profitable Canadian companies from sectors such as energy and technology, investing in less profitable companies may not be a wise decision. Therefore, low profitability is the second reason why it is not worth investing in Auto Canada stock.

In addition, Auto Canada shares have already seen significant gains in the last few quarters. Over the last three years, its inventory has increased by almost 270%. In my opinion, this consistent rise seems to overvalue the current stock price, even considering the company’s recent growth trends and future outlook.

Stupid takeaway

I agree that the solid year-to-date rise of 92% in Auto Canada shares looks very impressive. However, it may not be worth buying all the soaring stocks. Instead of investing your hard-earned money in ACQ stocks, you may want to buy something else. Cheap high dividend stock For now, it has the potential to generate much better returns in the long run.

Why Auto Canada’s inventory surged 135% in a year Why Auto Canada’s inventory surged 135% in a year

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