Is Ritchie Bros Stock Worth Buying in 2023?

With Ritchie Bros stock on the verge of a major acquisition, is it worth an investment in this uncertain market environment?

| More on:
A worker uses a double monitor computer screen in an office.

Source: Getty Images

Over the last year, we’ve seen the stock market sell off as a result of surging inflation, rapidly rising interest rates and, of course, the increasing likelihood of a recession materializing. For most companies, a recession will have a negative impact on business. However, some stocks, like Ritchie Bros Auctioneers (TSX:RBA), could actually see a positive impact from a slowing economy.

Recessions often happen, at least in part, due to a slowdown in consumption. That’s why the impact on so many stocks will be negative.

Some businesses, however, can thrive in a recession or, at the very least, be only minimally impacted, and these have been some of the hottest stocks over the last year.

For example, Ritchie Bros is up roughly 20% over the last year. After all, the stock is a leader in the disposition of industrial equipment that serves multiple industries.

So, it makes sense that a recession, particularly a mild recession which many are hoping for, could have a positive impact on its business. As the economy slows down, more companies could be looking to sell off equipment, especially if these businesses believe demand for their goods will slow down along with the economy.

On the flip side, many buyers could be looking to buy used equipment rather than newer, more expensive equipment to help minimize their expenses and risk in such an uncertain economic environment.

Therefore, as uncertainty continues to persist in the stock market and economy, Ritchie Bros is certainly one of the top stocks to have on your radar today.

Ritchie Bros stock has a tonne of potential both in 2023 and beyond

Although a recession could actually be positive for Ritchie Bros, investors should only consider buying the stock if they plan to own it for the long haul through many phases of the market cycle. After all, a recession may only last a year, so how Ritchie Bros can continue growing after the fact is a major consideration.

With that being said, Ritchie Bros stock has been impressive for some time. It’s constantly expanding its business and now operates in 12 countries around the world, serving a variety of sectors, including heavy construction, agriculture, energy, mining, and transportation.

This has led to significant and consistent growth for Ritchie Bros stock. For example, in the last 12 years, only one year has Ritchie Bros failed to increase its sales year over year. In addition, over the last decade, Ritchie Bros has seen its net income increase from less than $80 million to more than $300 million.

That’s led to investors earning a total return of more than 370% over that stretch, or a compounded annual growth rate of 16.8%.

And now, with the stock in the midst of acquiring IAA, which would expand its business into the auction of salvaged vehicles, Ritchie Bros has even more potential for long-term growth. Furthermore, Ritchie Bros believes that the acquisition could also contribute to significant cost savings.

Is RBA stock worth buying today?

Although Ritchie Bros has significant potential to perform well both in the short and long term, whether the stock is worth buying today depends heavily on its valuation. After all, the stock is trading less than 10% off its all-time high.

However, even after the stock’s rally in the last few months, it still looks like an attractive investment considering it currently trades at a forward enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 16 times, which is below its three-year average of 17.9 times.

In addition, the stock’s current forward price-to-earnings ratio of 25.9 times is also below its three-year average of 30.8 times.

Therefore, while Ritchie Bros doesn’t trade unbelievably cheap, it is discounted compared to historical values. And considering the potential the stock has to grow both its sales and earnings in the short and long term, it’s certainly one of the top stocks to consider buying today.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends Ritchie Bros. Auctioneers. The Motley Fool has a disclosure policy.

More on Investing

Bad apple with good apples
Dividend Stocks

Safe and Sound Stocks for Canadians: My Top 5 Choices

Want some of the best stocks for Canadians right now? Here's my top 5 list of stocks to buy today…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Investing

3 Roaring Stocks to Hold for the Next 20 Years

Given their long-term growth potential, these three outperforming stocks could continue their uptrends.

Read more »

stock data
Stocks for Beginners

1 Stock to Steer Clear of

TFI stock (TSX:TFII) has seen shares drop by 18% after earnings, but unfortunately it doesn't look like the first quarter…

Read more »

A bull outlined against a field
Stocks for Beginners

2 Top Bargain Stocks Ready for a Bull Run

These two top Canadian stocks look undervalued right now but might not remain cheap for very long.

Read more »

edit Sale sign, value, discount
Investing

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

Given their healthy long-term growth prospects and cheaper valuations, these three TSX stocks could deliver superior returns in the long…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

2 TSX Dividend Stocks With Yields Above 7% That You Can Buy With $100

Here are two high-yielding TSX dividend stocks you can buy with less than $100 per share today and hold for…

Read more »

oil and gas pipeline
Dividend Stocks

Should You Buy Enbridge Stock on a Pullback?

Down 25% from all-time highs, Enbridge stock remains a top investment choice due to its diversified business and steady cash…

Read more »

A airplane sits on a runway.
Coronavirus

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »