New Flyer Industries Inc. Still Has Gas in the Tank

Trading at or near 52-week highs, New Flyer Industries Inc. (TSX:NFI) is still an attractive buy. Here’s a big reason why.

| More on:
The Motley Fool

New Flyer Industries Inc. (TSX:NFI) has been a public company since its August 2005 IPO at $10. Some good things and bad things happened along the way to its current $3.4 billion market cap.

It was taken public by its private-equity owners — New York-based Harvest Partners and Lightyear Capital — which bought New Flyer from another private-equity company in December 2003.

At the time of its IPO, its private-equity owners held 60% of the stock. They got out in September 2008. A few months later, current CEO Paul Soubry took over, and New Flyer hasn’t looked back.

In fact, Soubry has done such a good job at New Flyer, the National Post named Soubry CEO of the Year in 2016.

As long as Soubry is at the helm, New Flyer shareholders can be confident the company is being well run.

New Flyer is on a roll

New Flyer’s stock has been on a huge run the past five years, delivering to shareholders an annual total return of 56.3%, better than any index could possibly generate. Take that, index investors.

Now trading within 5% of its all-time high of $57.70, us media types are starting to question whether its valuation has gotten ahead of itself.

Fool.ca contributor Karen Thomas asked that very question back in April. Ultimately, she came to the conclusion that while New Flyer might experience a slight correction, its valuation wasn’t unreasonable.

It’s up 11.4% in the two months since and 36.1% year to date. Still hotter than a pistol, investors likely are asking themselves the same questions about New Flyer’s valuation, etc., as they did back in April.

The number that counts

Thomas’s April article talked about the company’s slowing growth affecting its future valuation. She has a point. However, if you look past the usual financial metrics like the P/E ratio, you’ll see that it’s still a very reasonably priced stock. Here’s why.

It’s a little something called “cash return,” defined as free cash flow plus net interest expense divided into enterprise value, which itself is defined as market cap plus long-term debt less cash.

The cash return tells a better story than the P/E ratio.

New Flyer’s current cash return is 5.3%. Go back six years to 2010, and you get a cash return of approximately 7%.

While higher, the company’s free cash flow has tripled in those six years, while revenues have more than doubled. And, equally as important, profits have increased dramatically.

Today, you’re getting almost the same deal for a far superior company, both financially and operationally, making the extra 170 basis points more than worth it.

In my opinion, this tells me New Flyer Industries still has plenty of gas in the tank.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned.

More on Investing

Illustration of data, cloud computing and microchips
Tech Stocks

Missed Out on Nvidia? My Best AI Stock to Buy and Hold

NVIDIA stock has certainly warranted a place among headlines, but with the recent drop in shares, this stock is a…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Investing

Got $7,000? These TSX Stocks Are Perfect for Your TFSA

Time to start preparing for the next TFSA contribution increase. Here are two TSX stocks ideal for a TFSA hold.

Read more »

A airplane sits on a runway.
Investing

Why Bombardier Is a Stock Canadian Investors Should Avoid

Here's why I think now is the time for investors to be careful with Bombardier (TSX:BBD.B), especially after its recent…

Read more »

hand stacking money coins
Dividend Stocks

Invest $500 Per Month to Create $335 in Passive Income in 2025

By investing $500 per month into a high yield stock like First National Financial (TSX:FN), you could get $337 in…

Read more »

The sun sets behind a power source
Dividend Stocks

Fortis Stock: Buy, Sell, or Hold?

Fortis has delivered attractive long-term total returns for investors.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

Easiest Monthly Paycheck: 2 Canadian Stocks to Buy Now

These two Canadian dividend stocks could help you easily earn monthly passive income for years to come.

Read more »

worker carries stack of pizza boxes for delivery
Dividend Stocks

Is Restaurant Brands International Stock a Buy for its 3.3% Dividend Yield?

QSR stock still trades near 52-week highs yet offers a pretty good dividend as well. So, is it worth it,…

Read more »

hand stacks coins
Dividend Stocks

3 Dividend Stocks to Double Up on Right Now

Dividend stocks like Telus Corp, with its 7.4% yield, are good buys right now for their generous payouts.

Read more »