Automotive Finco (CVE:AFCC) Long Term Shareholders are 5.7% In The Black

For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Automotive Finco Corp. (CVE:AFCC) shareholders, since the share price is down 28% in the last three years, falling well short of the market return of around 12%. The silver lining is that the stock is up 2.8% in about a week.

See our latest analysis for Automotive Finco

With zero revenue generated over twelve months, we don't think that Automotive Finco has proved its business plan yet. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Automotive Finco will significantly advance the business plan before too long.

We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized).

Automotive Finco has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$39m, when it last reported (September 2020). That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 8% per year, over 3 years , it could be that the price was previously too hyped up. You can see in the image below, how Automotive Finco's cash levels have changed over time (click to see the values).

Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. You can click here to see if there are insiders selling.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Automotive Finco, it has a TSR of 5.7% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Automotive Finco shareholders gained a total return of 1.2% during the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 11% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Automotive Finco (of which 1 is a bit concerning!) you should know about.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

If you decide to trade Automotive Finco, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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