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Wajax Corporation (TSE:WJX), which is in the trade distributors business, and is based in Canada, received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$16.59 at one point, and dropping to the lows of CA$15. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Wajax's current trading price of CA$15.63 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Wajax’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Wajax still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.98x is currently trading slightly below its industry peers’ ratio of 12.58x, which means if you buy Wajax today, you’d be paying a reasonable price for it. And if you believe that Wajax should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Wajax’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Wajax generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted revenue growth of 10.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Wajax, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in WJX’s growth outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at WJX? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on WJX, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Wajax. You can find everything you need to know about Wajax in the latest infographic research report. If you are no longer interested in Wajax, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.