Cargojet (TSX:CJT) was a pandemic stock that seemed to have the best of everything. It was an airline stock that didn’t rely on passengers to take to the skies. It was also involved in the growth of e-commerce. Its cargo was delivered overnight, the only Canadian cargo airline to do so.
Yet since those days, with share prices hitting over $200 at all-time highs, Cargojet stock has come back down. These days, is Cargojet stock a buy? Or should investors ditch it?
What’s happening now?
Shares of Cargojet stock remain down 39% in the last month. The drop came as mentioned, as the company is related to the pandemic and e-commerce boosts. Those boosts caused Cargojet stock to soar and drop, as investors wanted their returns.
Yet when looking at Cargojet stock, it’s not exactly like the company has been doing anything. Certainly, it’s been affected by the increase in interest rates, the rise of inflation, and a drop in consumption. However, overall it’s been expanding at a strong click, and investors should be paying attention.
In fact, its most recent earnings report revealed exactly why.
Earnings reveal
Cargojet stock recently reported its second quarter, with shares rising 7% in the process. The company reported a profit with net income of $31.1 million in the most recent quarter. This was down from $160.9 million in 2022, with revenue coming in lower.
That profit was now a fraction of where it was a year before, with diluted earnings per share at $1.68 compared to $8.20 in 2022. And it’s why the company is now shifting its focus to cost management and “rightsizing” its network.
“While we expect economic conditions to remain difficult, the shift in consumer spending towards travel and leisure versus goods is expected to normalize towards the end of this year.”
Ajay Virmani, chief executive officer of Cargojet.
Thinking long term
So, while shares are up 7%, they dropped 5% in early trading on the day of its earnings release. After recovering, what are investors seeing that perhaps others aren’t? The main thing? Partnerships and expansion.
Cargojet stock over the years has created enormous opportunities by creating contracts with companies such as DHL and Amazon. These contracts last years, and create stable cash flow by providing these companies with overnight aircraft to deliver their products. Products that are demanded within days now more than ever.
Meanwhile, it’s increased its fleet of aircraft and destinations over the years, providing even more income during this time. So, while cost management is certainly important, it’s also important to note that the company will likely create more long-term cost savings that won’t be necessary as consumers come flooding back in the next year or so.
Bottom line
Analysts agree that the drop in share price for Cargojet stock is overdone. You can now grab the stock trading at just 6.67 times earnings, with a 1.22% dividend yield. The average dividend yield for the last five years was at 0.79%! So, you’re certainly getting a deal there.
Meanwhile, analysts predict the stock should reach about $150 in the next year. Given it’s now at $100 as of writing, that’s a potential upside of 50%! So, for investors wanting a strong long-term hold, Cargojet stock is definitely a buy today.
