AutoCanada Inc. (ACQ.TO)

A long drive ahead of it. Not the best brands in their dealership package. Overextended, so it's having a garage sale. Exposed to the west, which is struggling. Canadian consumer is one of the most indebted in the OECD. Economic cycle is still questionable. An alternative is APR.UN, with about an 8% yield. They own the dealership buildings and property and lease them. Attractive proposition.

She is short the stock. She doesn’t like it. It has been problematic for many years. The acquisition in the US didn’t make sense. Two months later they wrote a significant portion off.

(A Top Pick June 22/17 - Down 29%) Sold it a while ago. They liked the model. They made a bad deal that put him in an alert and they also bought something in the US that didn’t make sense.

He tends to short companies that show negative trends and he plans to stay short on this even though it has already dropped so much. It has had a few disastrous quarters in a row. There was chatter a year ago about them spinning out some real estate assets but apparently that failed. The balance sheet is now getting tight, with covenants that limit them to 4x debt to EBITDA. He thinks they’ll push up against that this quarter. He’ll stay short until they start improving their margins.

He has looked closely at this recently, but feels the balance sheet is scary. With a debt-equity of 4:1, it is too risky in the event of any recession. They make 90% on car servicing and feels a future recession could really impact this company.

They exited their position when they announced an acquisition in the US a couple of months ago – and they were relieved they did so. The company reported management changes last night and took a write down on the Chicago dealership asset of $45 million – a third of the asset value. Same store sales were down again. It is a good business, but the value is not worth investing in at this point. He thinks the earnings per share will continue to decline.

This started several years ago as a collection of Chrysler dealerships. They made an acquisition in Chicago that has added debt and needs to be proven as being accretive. He would watch to see how the new asset goes before buying.

Has had a roller-coaster ride in the last year. It was one of the go-go stocks buying private dealerships, but they hit a downturn and then now new Management took over. He thinks new Management is eventually going to improve execution. There is concern also in terms of peak sales in automobiles. They continue to expand and diversify from Alberta. Depending on your view of auto sales you should look at the stock.