Should You Be Adding AutoCanada (TSE:ACQ) To Your Watchlist Today?

·4 min read

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like AutoCanada (TSE:ACQ). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide AutoCanada with the means to add long-term value to shareholders.

See our latest analysis for AutoCanada

How Fast Is AutoCanada Growing Its Earnings Per Share?

AutoCanada has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, AutoCanada's EPS grew from CA$2.20 to CA$5.56, over the previous 12 months. It's not often a company can achieve year-on-year growth of 152%. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that AutoCanada is growing revenues, and EBIT margins improved by 2.4 percentage points to 4.8%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

earnings-and-revenue-history
earnings-and-revenue-history

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of AutoCanada's forecast profits?

Are AutoCanada Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Any way you look at it AutoCanada shareholders can gain quiet confidence from the fact that insiders shelled out CA$712k to buy stock, over the last year. And when you consider that there was no insider selling, you can understand why shareholders might believe that there are brighter days ahead. Zooming in, we can see that the biggest insider purchase was by Independent Director Lee Matheson for CA$419k worth of shares, at about CA$28.31 per share.

Along with the insider buying, another encouraging sign for AutoCanada is that insiders, as a group, have a considerable shareholding. With a whopping CA$71m worth of shares as a group, insiders have plenty riding on the company's success. Amounting to 11% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.

Does AutoCanada Deserve A Spot On Your Watchlist?

AutoCanada's earnings per share have been soaring, with growth rates sky high. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe AutoCanada deserves timely attention. Still, you should learn about the 2 warning signs we've spotted with AutoCanada (including 1 which can't be ignored).

Keen growth investors love to see insider buying. Thankfully, AutoCanada isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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