The Motley Fool

NFI Group Inc. (TSX:NFI) Is Undervalued and Set to Soar

little girl in pilot costume playing and dreaming of flying over the sky
Image source: Getty Images

If you’re looking for an undervalued stock that is pretty much set up for a big boost in the coming years, I would look no further than NFI Group (TSX:NFI).

This stock has it all: the growth, the balance sheet, and the future in mind — and all this from basically a bus company.

Yet some writers out there, such as fellow fool writer David Jagielski, are touting this stock as the next Tesla. And like I said, there are a few reasons why.

First stop: growth

Formerly known as New Flyer, this stock has come a long way since its inception in 1930. The Toronto-based, Winnipeg-born company produces heavy-duty transit buses, medium-duty buses, low-floor cutaway buses, and motor coaches to the United States and Canada from design stage through to distribution and even training. It is now the largest bus manufacturer in North America.

Now, the company is looking to a new market: electric. Its focus on electric buses could be huge and setting this stock up for some significant growth.

The only problem is, Canadians aren’t yet convinced. Cities are still pretty much focused on cars, and so that investment in new buses just hasn’t proven as exciting as say a new Tesla vehicle. But despite this, cities across Canada are trying to get on board. Vancouver is aiming to have a renewable fleet by 2050, for example. And by that time, the cost to produce them should come down, as where it stands now is somewhere between two and four times the cost to create a regular diesel bus.

Now, while this is a long time to wait, this is definitely a good opportunity to get in on this stock and wait it out for this bus business to boom again.

Second stop: finances

Again, this stock is definitely undervalued considering where it could take off in the next coming years. From its all-time high in 2018, the stock has dropped almost in half to where it sits at about $33.50 per share at the time of writing this article.

This is despite some super growth in its latest earnings reports. Earnings increased by 16 times between 2012 and fiscal 2017, with a slight decline in 2018 of 11% due to a backlog. Its earnings, after all, depend heavily on new bus and motor coach demand, with 85% of revenue coming from manufacturing and the rest from the aftermarket stage.

But while earnings may have come back a bit, the company still posted some record revenue of $2.5 billion and record new-vehicle deliveries. Earnings per share increased as well by 13.3 %, which was matched by management through the company’s dividend that now sits at a comfortable 4.67%.

Last stop: bottom line

While this company may have begun to slow, investors definitely shouldn’t count it out. NFI Group still plans on growing its top line, and investing in these electric buses, so when the time comes they are ready to pump them out.

As for where the share price sits now, it’s a steal. Given that it was at about $50 per share just last year, analysts think it’s fair to say it could easily hit $45 over the next 12 months. And with its next earnings report due May 8, investors may want to buy before another boost.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. Tesla is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.