3 Reasons I’m Buying Cargojet Stock Today

Cargojet presents an appealing opportunity from a valuation perspective, reinforcing my positive outlook on the stock.

| More on:

Shares of Canada’s leading air cargo company, Cargojet (TSX:CJT), have delivered solid returns over the past decade. Its stock has gained nearly 686%, reflecting a compound annual growth rate (CAGR) of impressive 22.9%. What stands out is that this growth includes the recent correction in its price. 

Investors should note that the pandemic significantly elevated the demand for Cargojet’s offerings, boosting its financials and share price. However, Cargojet stock gave up all pandemic-led gains and dropped nearly 54% in the past two years. This decline can be attributed to the normalization of demand following the economic reopening. Moreover, macro headwinds took a toll on consumer spending and slowed the demand for products that Cargojet transports, in turn, affecting its financials and share price. 

While Cargojet has lost substantial value, I maintain a bullish outlook on this Canadian stock. With this backdrop, let’s examine three reasons to understand why I’m buying Cargojet stock today.

Cargojet is driving efficiency and preserving cash

Macroeconomic challenges are exerting pressure on Cargojet’s shipping volumes. Despite battling with reduced demand and excess capacity, the company is actively pursuing strategies to enhance efficiency and preserve cash.

Cargojet is taking steps to curtail capital expenditures and reduce operational costs, which is encouraging. Moreover, in response to the volume weakness, the company is optimizing its domestic network by decreasing the number of block hours while still upholding the optimum service level. Furthermore, it has adjusted the costs related to temporary employees, overtime, and training, which supports its margins. 

The company’s focus on driving efficiency and preserving cash positions it well to easily navigate the short-term headwinds. Moreover, Cargojet’s long-term contracts add resiliency to its financial and operating performance. 

Customer contracts add stability

Cargojet’s fundamentals remain strong, despite facing near-term headwinds from lower volumes. It’s worth highlighting that Cargojet’s long-term customer contracts are supported by minimum volume guarantees and renewal options. Thus adding stability and visibility over future revenues. Further, these contracts have cost pass-through provisions that support and protect margins in an uncontrollable variable cost environment.

Cargojet’s earnings are poised for growth thanks to its valuable alliances with prominent logistics brands. The company has solidified its partnerships with Canada Post and Purolator. Moreover, these agreements are supported by minimum guaranteed volume commitments. Additionally, Cargojet has also renewed and extended its contract with United Parcel Service Canada. Notably, the company has also established strategic collaborations with industry giants like DHL and Amazon. These strategic agreements will cushion its earnings by driving demand for its services, including charter, aircraft dry lease services, and ACMI (Aircraft, Crew, Maintenance, and Insurance). 

Cargojet stock looks attractive on the valuation front

With the recent correction in its stock price, Cargojet presents an appealing opportunity from a valuation perspective. It trades at next 12-month price-to-earnings multiple of 21.1, significantly lower than its pre-pandemic levels of nearly 40. Additionally, the company has highlighted that its revenue and EBITDA run rate have doubled compared to the levels it had before the pandemic. This reinforces my positive outlook on the stock.

Bottom line 

Investors should note that Cargojet is a dominant player in Canada’s air cargo space. Its focus on driving efficiency and preserving cash, customer contracts, and low valuation make it a compelling long-term bet. Additionally, its ability to offer next-day delivery to more than 90% of Canadian households presents a solid competitive edge over its peers. Moreover, Cargojet maintains an impressive customer retention rate.

To sum it up, the company’s strong fundamentals, well-established domestic network, anticipated recovery in the e-commerce sector, and focus on reducing debt bode well for its growth and will likely drive its share price higher. 

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 Sneha Nahata has no position in any of the stocks mentioned. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool has positions in and recommends Cargojet. The Motley Fool recommends Amazon. The Motley Fool has a disclosure policy.

More on Investing

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

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

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

rising arrow with flames
Investing

2 Riskier Stocks With High Potential for Canadian Investors in November

Risky stocks such as Well Health Technologies have the potential to provide life-changing long-term returns.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »