This Stock Plunged to a 52-Week Low in March: Should You Buy Low Today?

Winpak Ltd. (TSX:WPK) has plunged to three-year lows following the release of its fourth-quarter and full-year earnings.

| More on:
Arrow descending on a graph

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The S&P/TSX Composite Index rose 48 points on March 5. The index has climbed 12% in 2019 so far. Canadians stocks boast high valuations, and many have spilled into technically overbought territory over the past several weeks.

Today, we are going to look at a stock that has plunged to three-year lows in March 2019. Is this stock the kind of discount that value investors are hunting for? Let’s dive in.

Winpak (TSX:WPK) is a Winnipeg-based company that manufactures and sells a variety of packaging materials and related packaging machines. Shares have dropped 12.6% in 2019 as of close on March 5. The stock has suffered from major setbacks since reaching all-time highs in the spring of 2017. Shares appeared to be regaining momentum in February 2018, but at the time I’d warned investors to look elsewhere.

Winpak released its fourth-quarter and full-year results for 2018 on February 26. In the fourth quarter, net income fell 32.7% year over year to $26.7 million, or $0.41 per share. Winpak received a considerable boost from the benefits of the U.S. Tax Cuts and Jobs Act in the prior year. In early January, I’d warned investors that the sugar rush from U.S. tax reform would wear off for many companies in 2019, and this would lead to disappointing year-over-year results.

For the full year, net income fell 8.7% year over year to $108.9 million, or $1.68 per share. Excluding the recovery from U.S. tax reform, earnings per share increased 1% year over year. Revenue was practically flat year over year at $222.1 million in Q4 2018 compared to $222.3 million in the prior year. The packaging machinery operating segment experienced a 5% bump in revenue from Q4 2017. For all of 2018, total revenue reached an all-time high of $889.6 million, but this only represented a 0.3% increase from the previous year.

Although 2018 was a lukewarm year, Winpak did manage to increase its cash and cash equivalents balance by $52.4 million from the end of 2017. U.S.-imposed tariffs on aluminum did cause a minor disruption, which resulted in inventories to advance by $15.6 million.

Winpak struck a cautious tone in evaluating its 2019 prospects in its Q4 earnings release. Growth in the North American food packaging industry was negative in 2018, which Winpak projects could influence revenue to some degree in the coming fiscal year. The company will commit $70-80 million for capital expenditures in 2019.

It is hard to be overly optimistic about Winpak’s prospects in 2019, but the response to the dip in Q4 2018 appears to be a slight overreaction. Glancing at its technicals, Winpak looks like a bargain right now. The stock had an RSI of 22 as of close on March 5. This indicates that shares are oversold as of this writing.

Value investors will be betting solely on capital growth going forward if they stash Winpak today. The stock only offers a modest dividend yield of 0.3%. Although the TSX index is overpriced right now, Winpak looks like a low-reward play in early March. Investors should look elsewhere for growth today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Man holding magnifying glass over a document

3 Heavily Shorted TSX Stocks to Watch This Summer

Canadians should monitor heavily shorted TSX stocks like Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) in this bear market.

Read more »

Airport and plane

3 TSX Stocks Set to Take Off With Summer Travel

Canadians should direct their attention to the travel industry and snatch up TSX stocks like Air Canada (TSX:AC) and others…

Read more »


Young Investors: 3 Canadian Stocks You Can Trust as Inflation Rises

Inflation has soared to new heights, which should spur young investors to snatch up Canadian stocks like Empire Company Ltd.…

Read more »

analyze data

2 Tech Stocks That Benefit From the Decline of Crypto

Crypto's bear market creates opportunities for traditional rivals like Lightspeed (TSX:LSPD)(NYSE:LSPD).

Read more »

Growing plant shoots on coins

Why This Canadian Growth Stock Could Double Next Thursday

This growth stock is set to soar if market recovery continues and what analysts expect from the company continues.

Read more »

Glass piggy bank

Market Correction: Boost Your Retirement Fund With These 2 Stocks

The correction in top TSX stocks presents a solid opportunity for investors with long-term financial goals to buy shares of…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s Every Credit and Benefit You Can Claim From the CRA

Parents have it hard already, so make sure the CRA is doing everything for you by dishing out payments you're…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for Life

These dividend-paying stocks have solid earnings base to support their payouts for decades.

Read more »