Industrial names generally suffer from deep cyclicality which can affect companies operating in areas ranging from machinery to aerospace to construction. Stuart Olson and Rocky Mountain Dealerships are industrial stocks on my list that are potentially undervalued, which means their current share prices are trading well-below what the companies are actually worth. There’s a few ways you can measure the value of a industrial company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly estimate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.
Stuart Olson Inc. (TSX:SOX)
Stuart Olson Inc. provides general contracting and electrical building systems contracting to the institutional and commercial construction markets in Canada. Established in 1981, and currently lead by David LeMay, the company provides employment to 2,297 people and with the company’s market capitalisation at CAD CA$195.50M, we can put it in the small-cap stocks category.
SOX’s stock is currently trading at -36% below its actual worth of $11.59, at a price tag of CA$7.41, based on its expected future cash flows. The mismatch signals a potential chance to invest in SOX at a discounted price. In terms of relative valuation, SOX’s PE ratio is trading at 20.97x compared to its Construction peer level of, 24.96x meaning that relative to its competitors, you can purchase SOX’s stock for a lower price right now. SOX is also strong in terms of its financial health, with short-term assets covering liabilities in the near future as well as in the long run. Finally, its debt relative to equity is 40.99%, which has been dropping for the last couple of years demonstrating its capability to reduce its debt obligations year on year. Dig deeper into Stuart Olson here.
Rocky Mountain Dealerships Inc. (TSX:RME)
Rocky Mountain Dealerships Inc., together with its subsidiaries, sells, leases, and provides support services for new and used agriculture and industrial equipment in Canada. Founded in 1949, and headed by CEO Garrett Ganden, the company size now stands at 860 people and has a market cap of CAD CA$244.51M, putting it in the small-cap category.
RME’s stock is currently hovering at around 25% lower than its intrinsic level of $9.85, at the market price of CA$12.33, based on my discounted cash flow model. signalling an opportunity to buy the stock at a low price. Additionally, RME’s PE ratio is currently around 12.31x relative to its Trade Distributors peer level of, 15.8x meaning that relative to its comparable set of companies, you can buy RME for a cheaper price. RME is also in good financial health, with short-term assets covering liabilities in the near future as well as in the long run. It’s debt-to-equity ratio of 163.15% has been dropping over time, signalling its capability to reduce its debt obligations year on year. More detail on Rocky Mountain Dealerships here.
Exco Technologies Limited (TSX:XTC)
Exco Technologies Limited, together with its subsidiaries, designs, develops, manufactures, and sells dies, molds, components and assemblies, and consumable equipment for the die-cast, extrusion, and automotive industries. Started in 1952, and currently run by Brian Robbins, the company employs 6,671 people and with the market cap of CAD CA$420.47M, it falls under the small-cap category.
XTC’s shares are currently hovering at around -51% lower than its real value of $19.98, at a price of CA$9.86, according to my discounted cash flow model. The difference between value and price signals a potential opportunity to buy XTC shares at a discount. Moreover, XTC’s PE ratio stands at around 10.5x against its its Machinery peer level of, 27.23x suggesting that relative to its peers, you can purchase XTC’s stock for a lower price right now. XTC is also a financially robust company, as near-term assets sufficiently cover liabilities in the near future as well as in the long run.
More detail on Exco Technologies here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks. Or create your own list by filtering TSX companies based on fundamentals such as intrinsic discount, health score and future outlook using this free stock screener.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.