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1 Small-Cap Gem With Huge Earnings-Growth Potential

Boyd Group Income Fund (TSX:BYD.UN) soared nearly 10% in a single trading session following the news that the company is buying Ontario-based Assured Automotive for $193.6 million. Boyd is more than doubling its Ontario exposure with the acquisition of Assured Automotive’s 68 auto repair shops.

Boyd is now up over 13% since my recommendation just under a month ago. Those are definitely some quick returns, but I think there’s a lot more in store for investors with a long-term horizon. Boyd is one of my top small-cap picks, and I think there’s a lot more room to run for the collision repair company, which is looking to grow through strategic acquisitions.

Assured Automotive executives Desmond D’Silva and Tony Canade will offer their expertise as they’re brought into Boyd’s management team. I believe there are many synergies that will be unlocked from this acquisition, and the deal will help Boyd maintain its impressive earnings-growth rate.

Boyd isn’t your typical income fund. In fact, the company only pays a 0.52% distribution, which is much lower than most income funds. Share prices have appreciated by a huge amount over this time frame as the company continues its consolidation of the auto repair industry, which is still very fragmented.

Accidents happen, even in economic downturns

Unfortunately, accidents happen, and this means more business for collision repair shops. We’re going to see more cars on the road in the years ahead, and that increases the chances of accidents happening. If the Canadian economy collapsed tomorrow, cars would still be on the road, and accidents would still happen.

Going forward, we can expect more acquisitions of Canadian and American collision repair centres. The management team is focused on finding value and driving synergies, so if you’re a long-term shareholder, you don’t have to worry about the management team making expensive deals for the sake of short-term profits. Boyd is an excellent long-term earnings-growth king that I think has a lot more gas in the tank.

Could the rise of self-driving cars hurt the long-term growth prospects?

Self-driving cars are a hot topic these days. Many tech companies are working on them as we speak, and we could potentially see regulated self-driving cars hit the roads over the next five years. It’s tough to say what will happen at this point, but in the early stages, I believe self-driving cars will still be prone to accidents. However, as the self-driving technology improves, we may slowly see the number of accidents decrease with time. This has got to be a red flag for investors of Boyd because fewer accidents mean less business.

Over the medium term, I believe Boyd will continue its earnings-growth streak and shares will continue to appreciate rapidly. However, over the long term, we may see growth plateau as accidents become less frequent thanks to innovative self-driving technologies.

I think we’re at least five years away from having completely autonomous vehicles on the road, but it could take even longer before Boyd feels the pressure from a reduction in accidents.

Boyd has a fantastic strategy to grow earnings, and I don’t think it’ll get into a collision of its own anytime soon. If you’re looking for a small-cap growth play, then Boyd could be your ticket to next-level returns.

Stay smart. Stay hungry. Stay Foolish.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned.

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