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

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

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

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »