A few days ago I had generated a list of undervalued stocks on TMX Money because I want to see if there are great companies with good fundamentals but are not at their true value. I would like to invest in these companies as I know their stocks are cheap with growth potential.
Here was the list:
Surprisingly, Air Canada and Blackberry were on the list.
Air Canada (TSE:AC) is the largest Canadian airline company and is offering domestic and international flights all around the world. The company’s stock was trading below $1 per share five years ago and the price has increased to $24.04 per share today. Yet, the company’s current P/E ratio is only 3.57. I understand Air Canada is an airline company and most airline companies have terrible balance sheets due to high fuel and operational costs. Nevertheless, I think Air Canada still have growth potential because the company’s main competitors, Westjet and Porter Airline will never grow to where Air Canada is now. Let’s see if my hypothesis is right!
Here is the company’s financial statement analysis from 2013 to 2016 (click here if you need a refresher on accounting formulas):
Unfortunately, I think Air Canada is not investable right now because of the company’s high debt to shareholders’ equity ratio (the company is using long-term debts and funds from advanced ticket sales to run its day-to-day operations) and high return on capital expenditure (the company is using a lot of money on acquiring or maintaining fixed assets, such as buildings and equipments). Nevertheless, Air Canada’s financial situation is improving as the company’s retained earnings and current ratio increase on a yearly basis. As a result, I could see myself investing in Air Canada in the future and I will add Air Canada into my Stock Watchlist.
Looks like I am not totally wrong after all!
On the other hand, BlackBerry (TSE:BB) provides mobile communication solutions and the company’s software was claimed to be have the highest security. BlackBerry also holds multiple intellectual properties and patents which make BlackBerry competitive. Pursing this further, BlackBerry was at its heights when the company’s stock was trading at $148.00 in 2018 and everyone wanted to use the company’s smartphones (remember Bold, Q10 and Curve?). Thereafter, BlackBerry started to go downhill with the introduction of Apple’s iPhone and BlackBerry no longer wanted to compete in the smartphone market and focused mainly on its software business. Today, BlackBerry stock is at $13.25 per share with a P/E ratio of 10.84. Do I think BlackBerry still have long-term competitive advantage? Well, let’s find out!
Here is the company’s financial statement analysis from 2014 to 2017 (the company’s fiscal year ends on February of every year):
Likewise, I would not invest in BlackBerry because the company is not making money (net income is negative).
It looks like some stocks are undervalued for a reason.
Do you currently hold any technology or airline company stock? When did you invest in those companies and how are they performing? Please leave your comments below! Catch you on the flip side!