ASX Watch: Why Are Apollo Tourism & Leisure Shares Sinking?

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Apollo Tourism & Leisure Limited [ASX:ATL] shares are sinking — and they’re sinking fast.

Should you be concerned?

Or is this an opportunity?

You’re about to find out.

Who is Apollo Tourism & Leisure?

Apollo is an Australian company which manufactures, rents, sells and distributes a range of recreational vehicles, including motorhomes, campervans and caravans.

ATL operates in Australia, New Zealand, the US, Canada, the UK, Ireland and Germany.

After going public in November 2016, investors were laughing as shares rose 73% before peaking in March 2018.

Since then, those who held their shares have seen their investment shrink an eye-watering 80%.

What’s going on with ATL?

Here’s my opinion.

The shrinking share price is to do with Apollo’s aggressive expansion, which has resulted in a large amount of cash going out the door.

Let me show you a timeline of events since the company listed on the ASX.

  • November 2016: Apollo lists on the ASX
  • February 2017: Apollo acquires Sydney RV Group, plus a 25% stake in Camplify
  • May 2017: Apollo acquires Kratzmann Caravans and Clint’s Caravan Warehouse
  • July 2017: Apollo acquires CanaDream
  • August 2017: Apollo acquires George Day Caravans & Motorhomes
  • March 2018: Apollo acquires Camperco
  • August 2018: Apollo acquires Fleetwood RV

As you can see, Apollo has been expanding at an ever-increasing pace and this is causing short-term stress, as seen in the chart below.

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Source: Optuma

In addition to its extensive list of acquisitions, Apollo began increasing its staff, ERP systems and new locations. It also began improving its branding and guest experiences. All right here in Australia.

As a result, ATL’s net debt increased from $198 million in 2017 to $274 million in 2018.

It’s no wonder investors are feeling the pain. Apollo has been rapidly expanding for future growth.

Except…

There is no telling when this growth will pay off.

On 2 May 2019, Apollo downgraded its net profit after tax (NPAT) to between $17.5 million and $19.5 million.

Then on 29 May, Apollo issued an investor update, noting a continuing deterioration in demand. The company issued a new profit target of $14-$15.5 million.

This is a classic case of not buying into a downward trending stock.

For now, it is best to sit on the sidelines and wait for the share price to turn around. Because trying to buy the dip could be the same as trying to catch a falling knife.

It simply isn’t worth it.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

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