Does This 1 Undersold Stock Represent an Intriguing Value Opportunity?

Bombardier, Inc. (TSX:BBD.B) is undervalued and has high growth ahead, so could it be one of the most exciting bargains on the TSX?

| More on:

A stock that seems perennially to be on the oversold stock lists, Bombardier (TSX:BBD.B) is still a TSX index ticker to be proud of — if only for its ability to generate speculation. Having peaked last summer, its share price has since been gradually declining (with a few false recoveries) and is still trading at a deep discount against the future cash flow value.

A low-flying stock on the ascent?

Bombardier has a one-year past earnings growth of 95.9%, while the North American aviation industry enjoyed considerably lower growth of 16.9%. The stock has 47.7% expected annual growth in earnings and a share price discounted by more than 50% of its future cash flow value. In other words, what you’d be buying this stock for is mid- to long-term capital gains; if you already hold stock in Bombardier, you may want to sit tight and wait for that share price to go up somewhat.

It’s rare to see a stock on its way down at the moment, with the TSX index broadly rallying after the market’s brief but disastrous holiday nosedive. And yet here we are, with Bombardier having shed 1.40% in the last five days, while the majority of other well-appointed stocks enjoy a range of gains. In fact, it’s hard to see why this growth stock hasn’t enjoyed something of a boost in recent weeks, considering that investor confidence is recovering somewhat.

A brief word on quality and value, though: while there is a bright outlook for Bombardier in terms of growth in earnings, a non-existent EPS in the data is a red flag; meanwhile, with more liabilities than assets dragging down the balance sheet, you can forget about looking up this stock’s past-year ROE. Negative or otherwise unreadable multiples leave the valuation to a +50% discount against the value per future cash flow, while a beta of 1.55 indicates a potential bumpy ride for buyers and holders.

Big aviators of Canada vs. America: which stock flies higher?

Compare the above stats with those of NYSE heavy-hitter Boeing (NYSE:BA). How often do Canadian investors check the stats for American aviation stocks like Boeing? If they did so today, they would see a stock in all-round good health and a strong competitor for our own homegrown aerial tickers. It had a good year, too, with a 49.1% rise in earnings.

For intrinsic valuation, look to a share price that is currently discounted by 23% compared to its future cash flow value. Negative assets lead to a wayward P/B ratio, though a P/E of 20.3 times and a PEG that’s still just below twice growth show that Boeing could definitely be worse value than it is today. A dividend yield of 2.35% flies just high enough to avoid the ground, while a 11% expected annual growth in earnings shows that Boeing is still gaining altitude.

The bottom line

Should you get in now to enjoy the upside that will come on the back of Bombardier’s high growth? Considering that Bombardier’s five-year average past earnings growth shrank 5.5%, a turnaround in its fortunes could see the stock soar on renewed investor confidence, meaning that today’s undervaluation could indeed offer one of the most tempting value opportunities on the TSX index.

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 Victoria Hetherington has no position in any of the stocks mentioned.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

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

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »