Should You Avoid AutoCanada Stock in May?

AutoCanada Inc. (TSX:ACQ) is an Edmonton-based company that operates franchised automobile dealerships. Shares have plunged 26.9% month-over-month as of early afternoon trading on May 17. The company is facing some serious headwinds in the auto sector as broader sales have dropped in March and April.

The company released its first quarter results on May 3. Same-store revenue rose 4.6% to $562.1 million and same store gross profit increased 1% to $95.5 million. Same-store total vehicle sales were up 3.1% to 11,407 units.

With successive positive earnings under its belt, why has AutoCanada plunged so steeply in May?

For the second month in a row vehicle sales dropped in the month of April. Compare this to the strong numbers posted in January and February, which surprised those who had projected a downturn compared to the record overall year in 2017. Sales in April dropped 2.7% from the same period last year, as dealerships sold 191,856 vehicles. April’s SAAR (Seasonally Adjusted Sales Rate) was 1.95 million. This represented the second-lowest level in 15 months and the second time since last April that SAAR dropped below 2 million.

Light truck sales have continued to power the overall trend as sales were up 5.1% year over year. Passenger cars were down 9.6% from April 2017. AutoCanada does offer a solid dividend of $0.10 per share representing a 2.3% dividend yield. However, investors may want to remain on the sidelines as there are many headwinds in the auto sector that could trip up results in 2018.