Yahoo Finance 1 Growth Stock Down 40% to Buy Right Now
Written by Daniel Da Costa at The Motley Fool Canada
Although there is merit in buying value stocks and dividend stocks can help to considerably lower the risk in your portfolio, some of the best investments to buy and hold for years in your portfolio are top-notch growth stocks.
Stocks that can grow their operations considerably and, more importantly, consistently have a reputation for delivering impressive gains driven by their business models, expanding market share, and increasing revenues.
And since the market is constantly fluctuating, especially in the current environment, savvy investors can use the opportunity to buy these high-quality stocks while they trade dirt-cheap. These dips in valuation can significantly increase the potential returns of an investment.
That’s precisely what the market is offering today. There are several high-quality Canadian growth stocks with years of growth potential that are trading well off their highs and looking like no-brainer buys today. One such stock worth a closer look is Cargojet (TSX:CJT).
So if you’ve got cash sitting on the sidelines that you’re looking to put to work, here’s why Cargojet looks like one of the best investments you can make while it trades more than 40% off its highs.
Despite a weakening economic environment today, this growth stock looks like one of the best investments to buy now
It’s important for investors to understand that Canadian stocks often sell off because of increased uncertainty in the market environment or the impacts that investors think the stock will experience as a result of a weakening economy.
Therefore, savvy investors that can keep a long-term mindset know that these environments never last forever. In fact, the highest-quality companies continue to find ways to grow their operations.
So while high-quality growth stocks like Cargojet trade at a major discount, it creates a buying opportunity that can lead to years or even decades of growth potential.
Over the last year, Cargojet’s share price has fallen by roughly 35%. Meanwhile, over that stretch, its revenue increased upwards of 29%, and its normalized earnings per share (EPS) increased by over 38%.
With the economy on the brink of a recession, a pullback in consumption is expected and e-commerce sales are slowing down slightly. Although these economic woes are impacting the demand for Cargojet’s time-sensitive shipping services, the stock’s sell-off is clearly excessive, leading to a major opportunity for investors.
So even if there continues to be a temporary pullback in e-commerce sales when the economy goes into a recession, the convenience and popularity of the e-commerce industry should continue to drive growth for years and even decades to come, giving Cargojet a long runway of potential growth.
Therefore, as CJT stock continues to trade undervalued yet still execute well, it’s undoubtedly one of the top growth stocks to buy now.
How cheap is Cargojet today?
With Cargojet trading at around $106 a share, down over 50% off its all-time high and more than 40% off its 52-week high, there’s no question that it’s cheap.
The stock currently trades at a forward enterprise value (EV)-to-earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of just 7.5 times. That’s well off its five-year average of 11.6 times, showing how cheap it is today.
For Cargojet to reach an EV-to-EBITDA ratio of 11.6 times, it would have to see its share price grow to over $185, and that’s based on its expected EBITDA this year.
Therefore, as the economy and market environment eventually recover, its valuation and profitability will rise, Cargojet stock has significant upside. That upside is why it’s one of the top growth stocks to buy now.
Even its average analyst target price of under $170 a share offers a more than 50% premium to today’s trading price.
So if you’ve got cash to invest and you’re looking for a bargain on the TSX, Cargojet is easily one of the best growth stocks to buy now.
The post 1 Growth Stock Down 40% to Buy Right Now appeared first on The Motley Fool Canada.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cargojet. The Motley Fool has a disclosure policy.
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