Ritchie Bros. reported March gross auction proceeds (GAP) of $524 million, which was a decrease of 8% from $569 million a year ago. While the magnitude of the decrease was likely a little bigger than consensus forecasts, it was mostly expected given the company’s commentary at its analyst day that February results were inflated because a few auctions held in March of last year took place in February this year.

Overall, first-quarter GAP results were up about 1%. While this is a modest figure and a few months certainly do not make a trend, we believe it at least signals that the negative mix issues may be reaching an end. The stock has outperformed the market so far this year, and we believe improved sentiment has been based on negative mix pressures nearing a bottom, an improving construction outlook, and opportunities for incremental margin improvement following a long period of investment.

While the valuation appears rich at 27 and 24 times our 2014 and 2015 EPS estimates, on a discounted-cash-flow basis, we could see the stock trading closer to the low to mid-30s over the next 18 months as fundamentals and construction trends improve, new territory manager training and hiring practices enhance sales productivity, and a CEO switch possibly invigorates the organization.