Investing is much like a game of chess. Instead of playing a human counterpart, share market investors are up against a faceless opponent who knows their inner emotions better than they do. This opponent does not play fair and is not averse to using every psychological trick in the book. Just like the very best chess players, successful investors have the ability to set aside all emotions nullifying this wily opponent when making investment moves.

A part of my weekly routine or game plan if you like, is to look at which stocks have fallen out of favour and try to understand if the market is correct in its judgement, or if it is merely bluffing to play games with our emotions.

One stock I believe which has fallen into the fear category rather than facts is Automotive Holdings Group Ltd (ASX: AHG). Automotive Holdings’ share price has declined over 20% in the last six months.

Background

Automotive Holdings describes itself as a diversified automotive retail and logistics group with operations in every Australian mainland state and in New Zealand.

Automotive Holdings has grown its car retail division ahead of the market, via both acquisitions and new developments. As with any roll-up strategy, Automotive Holdings relies on economies of scale to reduce costs and improve the profitability of each new acquisition. From the company’s 2016 presentation we can see that so far this strategy has served the company well with the last five years producing year-on-year increases in EPS and dividends.

AHG EPS and Dividend dataSource- 2016 company presentation

Current Market Conditions

With over 80% of the company’s revenue coming from automotive sales, it is important to keep an eye on new car sale statistics as a pointer to the health of Automotive Holdings’ market. Data from ABS confirms that Australia’s love affair with new cars continues to be strong.

AHG ABS car sales data

Logistics Division

While Automotive Holdings’ automotive division is performing well, the same cannot be said for its logistics division which has seen declining revenue. The decline in revenues has been attributed to a weak Western Australian economy which has been adversely affected by the declining resources sector. To combat this, Automotive Holdings has divested part of its logistics division and appointed a dedicated logistics General Manager.

Falling Australian dollar

While problems with logistics may well be part of the reason for the decline in Automotive Holdings’ share price, I believe the main contributing factor has been the fall in the Australian dollar. As the dollar falls, the cost of new vehicles which are manufactured overseas rises and the market appears to believe this will impact new car sales and in turn adversely impact Automotive Holdings’ biggest division.

While this is a valid concern, current ABS data shows that a declining dollar has yet to have the impact the market is pricing in.

Outlook

Automotive Holdings’ latest market update is forecasting a positive outlook for the second half of 2016 led by record new car sales, low interest rates and fuel prices.

Foolish takeaway

While no investment is ever a sure thing, investors can tilt the odds in their favour by tuning out market noise and investing on the facts presented before them. As the share price of Automotive Holdings falls, I believe now is the time for investors to start their own investigations into a company with a strong track record.

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Motley Fool contributor Alan Edmunds has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.