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The longest winning streak in the Canadian stock market is in danger of coming to an end.

Boyd Group Services Inc., the Winnipeg-based collision repair chain, has seen its share price increase in each of the past 14 calendar years. Over that time, the stock has generated an average annual total return of 45 per cent – making it the top performer in the S&P/TSX Composite Index by a wide margin.

With about a month of trading left to go in 2021, Boyd’s stock is down by 6 per cent on the year, as the company has struggled mightily against a potent mix of pandemic-related stressors.

The gummed-up global supply chain has made all sorts of auto parts more scarce and more expensive, while a tight labour market has had the same effect on the cost and availability of skilled technicians.

Squeezed on both revenue and expenses, Boyd’s profit margins took an alarming hit in the company’s latest quarter.

“It remains to be seen if they get back to [previous margins], or if this will create more of a permanent pressure point for them on profitability,” said Maggie MacDougall, head of research at Stifel GMP.

Boyd became one of the best growth stories on the Toronto Stock Exchange through a disciplined and relentless acquisition strategy. In what remains a highly fragmented collision repair industry in North America, Boyd grows by scooping up several dozen locations a year, boosting revenue through relationships with insurance companies, and cutting costs through economies of scale.

“It’s a very stable industry, it’s usually recession-proof, and it equates to 15- to 20-per-cent earnings growth, year in, year out,” Ms. MacDougall said.

It’s an approach shared by fellow serial acquirer Constellation Software Inc., which is the only other current listing in the Canadian benchmark index to match Boyd’s 14 consecutive years of positive returns.

Unlike Boyd, Constellation has continued to thrive in an economy transformed by the pandemic, with its rate of acquisitions tracking toward a record high for 2021, while its shares have risen by 31.5 per cent year-to-date.

Boyd, on the other hand, has had to scale back its growth ambitions. “It’s less of an acquisition opportunity right now,” Boyd chief executive officer Timothy O’Day said in a call with analysts about three weeks ago. “We just need to work hard to get these things back on track.”

As the North American economy has reopened and traffic volumes have approached prepandemic norms, Boyd’s demand has risen to levels it is unable to meet.

Like many employers, Boyd is having trouble filling positions in an incredibly tight U.S. labour market, fuelled by workers quitting in unprecedented numbers as job openings soar.

In the third quarter, Boyd said demand for its services exceeded capacity in all U.S. markets. In an attempt to retain and attract technicians, the company has had to rapidly raise wages.

Meanwhile, bottlenecks in the global supply chain have resulted in shortages in everything from chassis to windshields, which has magnified the pressure on Boyd’s margins, as it has been forced to look for parts from alternative suppliers.

Boyd is not ideally positioned for an inflationary environment, which tends to favour companies with pricing power. Boyd’s main customers are insurance companies, which tend not to move too quickly in raising the rates they pay to their partners in the collision repair business.

As Boyd chief financial officer Narendra Pathipati said on the company’s last earnings call: “We are price takers, so we can persuade, but we can’t implement unilaterally a price increase.”

That imbalance between revenue and cost inflation dragged down Boyd’s third-quarter margins to 10.5 per cent, as measured by earnings before interest, taxes, depreciation and amortization. In the same quarter last year, the company posted an EBITDA margin of 16.6 per cent.

“That’s a big hit,” said Jason Del Vicario, a portfolio manager at Hillside Wealth Management in Vancouver. “And it seems like their labour issues are going to be an ongoing concern.”

Investors responded to the quarterly results by driving the stock down by 10.1 per cent the following day – into negative territory for the year so far.

But for investors willing to look past a few rocky quarters and stick with one of Canada’s premier consolidators, Boyd “is likely to come out stronger,” Scotia Capital analyst Michael Doumet said in a recent note. “We don’t think the streak is about to end.”

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