Should You Avoid AutoCanada Stock?

Automobile sales in Canada were down from a record performance in 2018 but were still strong from a historical perspective. AutoCanada (TSX:ACQ) operates franchised automobile dealerships across Canada.

Its shares were punished throughout 2019 due to this year-over-year dip, but it showed improvement late last year. Unfortunately, the COVID-19 pandemic has slammed the brakes on its rally.

The pandemic and the subsequent lockdowns have had a devastating impact on broad sections of the economy. DesRosiers Automotive Consultants recently released sales data from the month of April. Sales of Canadian automobiles were down by almost 75% from the prior year.

This marked the second straight month of double-digit declines after a 48% plunge in the month of March.

Dealerships will anxiously await the economic reopening that the industry hopes will improve activity. Suffice it to say, AutoCanada is a risky stock to own right now. Its shares have dropped 38% in 2020 as of close on May 27.

The company is expected to release its first quarter 2020 results on June 4. This development is an unfortunate one for AutoCanada after it posted a strong bounce back year in 2019.

AutoCanada’s revenues in the near term will be severely hindered due to this crisis. Moreover, the company was forced to suspend its quarterly dividend in late April. There is little reason to consider buying the dip in AutoCanada until a path to some sort of normalcy becomes clearer.