Bearish slumps and even long-term bear market phases are not uncommon among robust growth stocks. It’s sometimes difficult for such stocks to recover because once investors who generally prefer long-term investments lose confidence, they don’t come back without a solid reason. However, Boyd Group Services (TSX:BYD) might be an exception.
The company
Boyd Group is a giant in the non-franchised collision repair centres market. It has a massive footprint in North America through five businesses under its banner. The Gerber Collision & Glass U.S. division is by far the largest of its companies and has 850 locations in the country. The Canadian footprint is minimal by comparison, with about 128 locations under two brands. About 90% of the company’s revenue is from the U.S.
Another interesting thing about its business model is that the bulk of its dealing is with insurance companies, not consumers. This gives it a bit of an edge when it comes to revenue stability. But it also ties its business volume to insurance providers. That said, the company has experienced a decent rise in its financials through the last four years and will hopefully continue to do so in the future.
The company faces a challenge in the form of autonomous vehicles that are expected to lower the number of road accidents significantly, but that’s at least a decade away. It’s also evolving to work on the more technically advanced vehicles we now see in the market. They are also changing to better service electric vehicles (EVs), which now make up a substantial portion of the overall vehicle sales in the U.S.
The stock
While the company looks well-positioned for continued growth, the stock is going through a correction phase after a long history of consistent and robust growth. The most potent growth phase the stock experienced in the last five years pushed the stock up 145% in less than two years. Right now, it’s discounted and trading below 25% of its five-year peak. Unfortunately, this decline hasn’t done much to adjust the stock’s valuation properly, and the price-to-earnings ratio is currently at a dangerously high level — over 86.
Another negative point to consider is that hedge funds have a significant stake in the company. But it’s partially countered by a sizable institutional holding. There has also been some insider buying in the last few months and virtually no insider selling. Some experts have also raised the target price for the stock.
Foolish takeaway
Boyd Group might be ready to surge in 2025, and while it may not be comparable to its powerful, pre-pandemic growth, a solid bull run spanning over a year can help the stock offer decent returns to its investors. A solid earnings report for the last quarter and the full year (2024) can also be the catalyst that triggers the stock’s growth.
