Choosing the right undervalued stock is more than just about gauging how undervalued it is. A stock that’s only modestly undervalued and likely to recover in a matter of months and pay off its investors relatively quickly might be a better pick than stocks that are heavily undervalued but might not recover for years.
So, even if plenty of undervalued stocks are trading on the market at any given time, relatively few of them might be worth buying right away. One such stock you should consider is Lassonde Industries (TSX:LAS.A).
The company
Lassonde Industries can trace its roots back to 1918 when one couple started a small vegetable canning business. The company introduced its first beverage, apple juice, under its primary brand Rougemont in 1959. This was the start of its legacy as one of the prominent fruit and vegetable juice companies in North America.
One of its subsidiaries, Lassonde Pappas, is the second-largest private-label fruit juice company in the United States. There are 27 brands under the Lassonde name, covering a range of beverages. The company dominates the fruit and vegetable juice market, but it also has a wine brand as well as snack, soup, and broth products in its portfolio.
The stock
The company is currently trading at about $100 a share and has a market value of about $682 million. This results from a steady decline from the 2018 peak price, which has culled its valuation by about 65%. The heavy discount has also triggered a modest devaluation of the company, and it’s currently trading at a price-to-earnings ratio of about 12.7 and a price-to-book ratio of about 0.8.
The financials, however, have been relatively healthy, at least since the beginning of 2021. The gross profits have fallen but only mildly, and the revenue has steadily grown quarter after quarter.
This undervaluation and the bullish performance of the stock before 2018 are the two powerful reasons to consider this stock right now. It rose quite consistently in the 10 years between 2008 and 2018 and grew by about 750% within a decade. It showed relatively modest but still impressive growth in the decade preceding the Great Recession.
Assuming that the current slump is similar to the slump during the Great Recession (for the company) and it may offer growth similar to the growth between 2008 and 2018 in the near future, buying it now would be a smart decision.
Foolish takeaway
While the yield is not quite impressive at 2.8%, the dividend seems quite financially healthy from a rock-solid payout ratio that has remained under 40% for the last 10 years. The dividend can be considered an additional incentive to buy this undervalued stock right now.
