AutoCanada Inc. (TSX:ACQ) stock dropped another 5.1% on August 23. Shares have been throttled in 2018, shedding 45.7% worth of value so far. A combination of external factors and internal weakness has put the company in a precarious position as we look ahead to next year.
The second quarter sparked a comprehensive internal review at AutoCanada. "Neither our top line performance nor our profitability were acceptable and so we acted," said newly appointed Executive Chairman Paul W. Antony.
Revenue fell 1.6% year-over-year to $880.6 million and gross profit dropped 2.3% to $140.6 million. New vehicle sales were down 6.9% year-over-year reflecting broader trends for auto sales in Canada. The company forecast that a protracted slowdown could be forthcoming in the Canadian market.
AutoCanada could also face the threat of blowback from auto tariffs that could be imposed by the Trump administration. This move has the potential to significantly raise the average cost of a Canadian automobile which could result in more disruption in the industry.
However, there has been some positive news on the NAFTA front in recent weeks. There has reportedly been a "handshake deal" between the U.S and Mexico and both sides could soon bring Canada into the fold to move forward.
Unfortunately, even the positive news of a NAFTA deal is likely not enough to drive momentum at AutoCanada. The auto sales industry has posted four consecutive record years and is due for a pullback that will result in volatility in the medium and perhaps long-term at AutoCanada. Investors should stay away for the remainder of the year.
