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Savaria Corp. (TSX:SIS) has plummeted 33% from its highs in 2018, and has really done nothing in 2019, so I am left with the question of whether this undervalued dividend stock is one of the great opportunities of 2019.
To answer this question, let’s look at the company’s long-term fundamentals.
It’s an unfortunate reality, but the fact is that with the aging population comes more and more people that will need help with accessibility and mobility.
And Savaria is there for them.
The company manufactures and distributes personal mobility products such as stairlifts, elevators, and platform lifts, for the aging population in Canada, the United States, Australia, South America, and Europe.
75% of its revenue is from outside of Canada, mostly from the U.S.
Its stock has risen more than 294% in the last five years, as revenue has increased 245%, net income has increased 176% and cash flow from operations has increased 178%.
So what’s up with the stock?
Well, earnings have come in below expectations for many quarters now, and with this, earnings estimates have come down. That’s obviously not good, but we have to figure out is if this is a sign of things to come or just a bump in the road.
Savaria has embarked on an aggressive acquisition strategy this last year, increasing its diversification and reach, and opening itself up to more opportunities.
With this, margins have suffered in the short term, as integration is under way.
Management has stated that the next two years will be focused on integrating these acquisitions and setting the company of for continued future growth. I think this company is seeing growing pains right now that I think will be overcome as the company continues to capitalize on the growth in its industry.
And make no mistake.
The cash flow generating capability of Savaria is still strong, and in the latest quarter, free cash flow as a percent of revenue was 5%.
Accordingly, management increased its dividend 21% by in 2018, and the stock’s dividend yield is currently a very attractive 3.05%.
Savaria stock trades at a P/E multiple of 22 times this year’s consensus expected earnings and 19 times next year’s earnings.
Earnings per share has doubled since 2014 and is expected to rise another 75% by 2020, so this valuation level appears grossly undervalued.
All in all, this stock is seeing very strong growth, trading at attractive valuations while giving investors a solid and growing dividend yield.
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Fool contributor Karen Thomas has no position in any of the stocks mentioned.