I enjoy going to local auctions on a weekly basis and watching Auction Kings, Auction Hunters and Storage Wars on television. For investors who are looking at investing in the auction industry Ritchie Bros. Auctioneers (RBA) is the world's largest industrial auctioneer. Ritchie Bros. was established in 1958 and is headquartered in Vancouver, Canada with operations in over 25 countries. For investors who are not familiar with Ritchie Bros. this company sells industrial equipment that is tough to sell through traditional means; EBay (EBAY), Craigslist and classified ads. Sellers go to Ritchie Bros. to sell their industrial equipment since bulldozers, combines, semi-trucks, etc are pieces of machinery that generally have a used price tag with at least five zero's in it. Sellers who try to sell these pieces of industrial machinery themselves can often find that they may be holding these expensive pieces of machinery longer than intended and going to an auction is typically the only alternative if one can't sell on their own.
Some industries can be difficult to understand how they make money, but the auction industry is a simple industry that revolves around buyers, sellers and an intermediary. Ritchie Bros. revenue is derived from auction commissions and auction fees that are usually negotiated before the item is sold. At a Ritchie Bros. auction anyone is allowed to attend and most of the auctions operate on no reserve, which means the item will be sold to the highest bidder.
The growing global concerns with Europe, China and other countries may have investors think twice before investing in a company that has global exposure, but Ritchie Bros. is the type of company that can profit in a variety of economic conditions for the following reasons:
1) Unless investors expect to see a dramatic worldwide economic slowdown the cost for brand new heavy industrial equipment is expected to rise and it's simply cheaper for existing/new companies to purchase used equipment at the price they want to pay for it.
2) Ritchie Bros. has a strong chain of command in the auction industry that has become more focused on having employees specializing in a certain areas of industrial equipment. The territorial and sales managers in a particular region know what industrial equipment is in demand and by having employees being able to work more closely with senior management this can lead to increased sales.
3) Ritchie Bros has started to establish operations in China and has been there for over five years with the first auction to be held in Beijing in late 2012 or early 2013. Auctions have generally been illegal up to the mid 1990's. The used industrial equipment market in China can be viewed as fragmented and in my opinion China is not organized for more people having access to cheap used industrial equipment. A rebound in growth within China will be beneficial for Ritchie Bros. and create new jobs.
4) Gross auction proceeds, auction revenues and internet sales all have increased during the first quarter of 2012 compared to the same quarter in 2011.
5) Ritchie Bros. continues to grow outside the U.S. and Canada and used equipment prices have been stable throughout 2012 with continued demand for used industrial equipment in good condition.
When taking a look at a two year chart of Ritchie Bros. investors will notice that the $19 level has been a decent level of support. Ritchie Bros. started off 2012 on a bang with shares rallying about 18% and during the first quarter of 2012 Ritchie Bros. recorded the highest first quarter auction revenues in their history. Since Ritchie Bros. 2012 high of $25.80 on February 24, 2012 the stock has fallen below where they started off in 2012. When considering investing in Ritchie Bros., the auction industry is a seasonal business with a slowdown in the winter months followed by business picking up in the spring time. Investors should also pay attention to the credit markets since new or existing companies looking to purchase equipment are going to need a large amount cash to expand their business. One of Ritchie Bros. competitors is the industrial rental business since renting/leasing industrial equipment can be seen as a viable option to purchasing used equipment. An improving global economy and credit markets will help Ritchie Bros. in the future as industrial equipment will always need to be bought or sold.
In conclusion, Ritchie Bros can benefit from economic conditions that investors may view as favorable or not as the price for industrial equipment rises in the future. With shares of Ritchie Bros. below $20 the stock may seem at a favorable price with a 2.3% dividend yield and expansion in areas of the world where auctions of used equipment have historically been private or by invitation only. In the future as long as there is a market for industrial equipment Ritchie Bros. is poised to profit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.