One Stock to Watch as Auto Sales Rebound

AutoCanada (TSX:ACQ) is an Edmonton-based multi-location automobile dealership group. Its shares struggled in 2018 and 2019 as Canadian auto sales suffered from year-over-year declines.

Sales in 2019 were 3.6% lower than 2018. The stock has shot up 75% over the past three months as of close on February 6. This is largely on the back of a broader rebound in Canadian auto sales.

Canadian auto sales rose 0.8% year-over-year in the month of January according to DesRosiers Automotive Consultants. Passenger car sales fell 17.2% from January 2019 but light trucks, which have carried the market in recent years, saw sales climb 6.7%.

Despite difficult conditions, AutoCanada managed to put together solid results in 2019. Investors can expect to see its Q4 and full-year 2019 results in March.

In Q3 2019 AutoCanada reported revenue of $981.9 million which was up 13.3% from the prior year. Total vehicles sold rose 2.8% to 19,652. Adjusted EBITDA soared 100.7% year-over-year to $32.5 million.

Its Canadian operations posted revenue growth of 20.1% and an increase in units sold of 11.9%. Net income surged 178% year-over-year to $10.7 million. The company has made considerable progress since announcing a strategic shake up in the summer of 2018.

AutoCanada possesses solid growth potential but its interest payments and dividends are not well covered by its current earnings. Investors will want to look for improvement in this area going forward.

Broader momentum for auto sales is a great sign, but the stock last had an RSI of 74. This puts it in technically overbought territory.