Analysts Are Optimistic We'll See A Profit From AutoCanada Inc. (TSE:ACQ)

Simply Wall St
·3 min read

AutoCanada Inc. (TSE:ACQ) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. AutoCanada Inc., through its subsidiaries, operates franchised automobile dealerships in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, and New Brunswick, Canada; and Illinois, the United States. The CA$900m market-cap company announced a latest loss of CA$7.5m on 31 December 2020 for its most recent financial year result. Many investors are wondering about the rate at which AutoCanada will turn a profit, with the big question being “when will the company breakeven?” Below we will provide a high-level summary of the industry analysts’ expectations for the company.

See our latest analysis for AutoCanada

According to the 9 industry analysts covering AutoCanada, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2020, before generating positive profits of CA$69m in 2021. So, the company is predicted to breakeven approximately a year from now or less! At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 53%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

We're not going to go through company-specific developments for AutoCanada given that this is a high-level summary, but, keep in mind that generally a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

One thing we would like to bring into light with AutoCanada is its debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on AutoCanada, so if you are interested in understanding the company at a deeper level, take a look at AutoCanada's company page on Simply Wall St. We've also put together a list of pertinent factors you should further examine:

  1. Valuation: What is AutoCanada worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether AutoCanada is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on AutoCanada’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.