E Inc has a 192 per cent upside, says ATB

Car auction platform E Automotive (E Automotive Inc Stock Quote, Charts, News, Analysts, Financials TSX:EINC) is steering towards profitability, according to ATB Capital Markets analyst Martin Toner, who reiterated an “Outperform” rating on the stock in a Tuesday report to clients. Toner said EINC is currently trading at a discount to its auto tech peers.

Toner and ATB Capital recently hosted a deck presentation with E Inc where discussion focused on topics such as EINC’s recent acquisition of Houston Auto Auction, progress on the company’s broader land-meets-tech strategy and current conditions in the pre-owned vehicle and wholesale auction markets.

Last month, EINC announced a definitive agreement to acquire Houston Auto Auction for US$5.5 million, with Houston being part of E Inc’s land-meets-tech strategy of buying physical auction sites and integrating them with its digital wholesale platform. 

But with the Houston announcement, E Inc also said it would be putting that strategy on hold for a while due to macroeconomic pressures, with the aim of being financially disciplined.

For colour on the issue, Toner said E Inc has completed four EBITDA-generating acquisitions that are now serving as beachheads to launch and scale the company’s digital solution for wholesale auctions, called EBlock.

 “Management noted that while there is a significant growth opportunity in the digitization of wholesale vehicle auctions, profitability is now the most important focus for the Company. It intends to achieve profitability through the integration of digital and physical auctions in key US regional markets,” Toner said.

On the wholesale auction market in general, Toner said 2022 was difficult, according to E Inc management, as there were a record number of consignments along with a significant decline in conversion rates, together forcing E Inc to spend heavily on bringing vehicles onto its platform without being able to convert them to sales.

At the same time, Toner said he’s optimistic on E Inc’s future and the prospects for the stock. With his “Outperform” rating, Toner maintained a $12.50 per share target price, which at the time of his report’s publication represented a projected one-year return of 192 per cent.

“After years of being product-focused, E Inc has a lead in delivering a fast, transparent, data-rich solution that meets dealers where they want to buy and sell vehicles,” Toner wrote. 

“The stock’s market capitalization is below paid-in capital, and it has lagged auto-tech peers such as Carvana Co and ACV Auctions Inc year to date. Our return to price target for E Inc’s stock is the highest in our coverage universe, and we believe the stock represents an attractive opportunity, despite the lack of liquidity,” he said.