While several tech stocks continue to trade at lofty multiples, it’s still possible to find companies across multiple sectors priced at a discount to their intrinsic value. In this article, I have identified one undervalued TSX stock that’s positioned to deliver outsized gains to shareholders in 2024 and beyond. Let’s see why.
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An overview of TerraVest Industries stock
Valued at a market cap of $2.2 billion, TerraVest Industries (TSX:TVK) manufactures and sells goods and services to energy, agriculture, mining, and transportation markets in North America. It has three primary business segments:
- Fuel Containment: It manufactures liquified petroleum gas (LPG) transport trailers, service trucks, storage tanks, dispensers, furnaces, and boilers. These products are sold to end users, including fuel distributors, transportation companies, and other commercial customers.
- Processing Equipment: It manufactures and sells wellhead processing equipment and tanks, natural gas liquids (NGL) and LPG storage tanks, transport trailers, and other customized processing equipment.
- Services: The segment provides well servicing to the oil and gas sector.
TerraVest stock has crushed the broader market returns, returning 1,810% in the past decade. If we adjust for dividend reinvestments, cumulative returns are higher at 2,560%. Despite its market-thumping gains, the TSX stock trades at a reasonable multiple and remains a top investment choice today.
TerraVest Industries has increased its sales from $306 million in fiscal 2019 (ended in September) to $678.4 million in fiscal 2023. In the last 12 months, its revenue has surged by 28.2% year over year to $855.1 million.
While TerraVest is part of a low-margin industry, it has improved its gross margins to 28.5% in the last four quarters, up from 24.5% in 2023 and 21.6% in 2022. Its operating margins have also widened to 13.9% this year, up from 8.9% in 2022.
The undervalued TSX stock is a buy
In the fiscal third quarter (Q3) of 2024, TerraVest reported revenue of $238.12 million, indicating an exceptional annual growth rate of 58%. Its improving profitability allowed the company to report an operating cash flow of $45.3 million in Q3, up from $18.4 million in the year-ago period. TerraVest continues to invest in capital expenditures, which totalled $5.95 million in Q3, up from $4 million last year.
Its free cash flow of $32 million in Q3 indicates a margin of almost 15%, allowing it to pay shareholders an annual dividend of $0.60 per share, which translates to a yield of 0.55%.
In the last three quarters, its dividend payout ratio stood at 10%, providing it with enough flexibility to reinvest in acquisitions and lower balance sheet debt.
In the last 12 months, TerraVest has acquired the following:
- AEPL: A Canadian manufacturer and service provider in the tank trailer industry.
- HT: A manufacturer of fuel and chemical storage tanks, wastewater storage, treatment tanks, LPG vessels, and other steel storage products.
- LV: It provides waste management and related services to Canadian energy companies.
TerraVest has utilized its free cash flow to reduce its long-term debt by more than $50 million in the last two years. It ended fiscal Q3 with a long-term debt of $175 million.
Analysts tracking the TSX stock expect adjusted earnings to expand from $3.35 per share in 2024 to $4.17 in 2025. Priced at 27.8 times forward earnings, TVK stock is reasonably valued and should be part of your equity portfolio today.
