The summer months are supposed to be full of relaxation, meditation and preparation for sending the kids back off to school. Unfortunately, the stock market never seems to get the memo with recent quarterly results leading to stocks making big moves in either direction.
Here are three stock that are on the move and why.
Aimia Inc. (AIM-T)
Aimia is a loyalty marketing company that is the owner (for now) of the Aeroplan business.
If there was ever a stock to take a round trip (no pun intended) in a year, this one is it.
Over the last twelve months, AIM has risen over 111 per cent and dropped back to where it started only to jump back to recent highs, up nearly 130 per cent. While looking at the prices over the last year has been a wild and maybe profitable ride for some, over the longer term, these moves are a little less inspiring with the shares being down roughly 73 per cent over the last five years.
Why AIM is on the move
What first caused the decline in shares was that the company’s loyalty partner, Air Canada (AC-T) announced it will be ending its partnership with AIM in 2020 when the contract expires and launch their own loyalty plan. With most of the business revolving around Air Canada and the Aeroplan loyalty points, Aimia investors did not take kindly to this news.
However, in what was either an opportunistic management call in the moment, a shrewd strategic plan from the beginning, or a forced hand with AIM’s announcement to launch its own airline service, Air Canada has now turned around and decided to buy Aimia at pretty much the price it was trading at before all of this drama began. Aimia will be receiving $450-million in cash and will be passing on $1.9-billion in Aeroplan liabilities to the new buyers.
It leaves Aimia in an interesting position, with cash to spend, but markets will be watching closely to see what the company decides to do going forward with what is now a fundamentally different company.
Gildan Activewear (GIL-T)
We often believe that boring businesses make great businesses, and Gildan is a name that fits this bill.
The company manufactures branded apparel and printwear, which is clothing that other brands can essentially print their brand on top of. While the unbranded clothing business may sound boring, what the company is doing is a bit more exciting.
With exclusive distribution rights for socks with Under Armour Inc., sales of men’s underwear through Amazon and the purchase of American Apparel, which is now selling through online channels, the operations have been far less sleepy than the stock may indicate.
Why Gildan is on the move
In short, many of the initiatives mentioned above look to be finally gaining traction for Gildan. The stock saw a steep decline prior to earnings for no apparent reason only to release an earnings result that beat market expectations on the top and bottom lines and upgraded its guidance for the year. Like Aimia,, this sent the shares on a bit of a round trip.
A&W Revenue Royalties (AW.UN-T)
Many readers are likely familiar with the burgers and root beer from A&W restaurants, but many may not be aware that the company is publicly traded as a royalty company.
Essentially, AW.UN takes a royalty on revenues from A&W franchises and pays that out in the form of a distribution to the shareholders. As the number of restaurants and sales increases, so too does the royalty that the company receives. The nice thing about these businesses is that they don’t have to worry about food and labour costs and simply take some money off the top.
Why A&W is on the move:
One of the more important metrics when looking at the restaurant industry is same-store sales growth. In the past, A&W has been one of the faster growing fast-food companies in Canada, but a few quarters back the company was showing signs of slowing growth. Fortunately, this appeared to simply be a blip, and the company looks to be back to its old ways with same store sales growth up 6.6 per cent in the recent quarter (Q2) and 5.3 per cent in the quarter before that. For some context, many companies in a similar space struggle to post growth in excess of 2 per cent let alone do it on a consistent basis.
Disclosure: The writer holds no positions in the above-mentioned stocks. In order to remain conflict-free, employees of 5i Research cannot trade in Canadian stocks.
Ryan Modesto, CFA, is CEO at 5i Research, a conflict-free investment research provider for retail investors offering research reports, model portfolios and investor Q&A, which is available to try for free. 5i Research provides content under an agreement with The Globe and Mail, which receives royalty compensation.