This 1 Stock Is Too Cheap to Ignore

Indigo Books & Music Inc. (TSX:IDG) is trading at $6.30 despite having assets valued at $13.57 per share. It’s time to read up on this stock.

| More on:
woman data analyze

Image source: Getty Images.

When it comes to books, Indigo (TSX:IDG) is unequivocally the retailer of choice. It’s the parent company of Chapters and together forms the largest bricks and mortar book retailer in Canada.

The company has since expanded its offerings to include home furnishings and gifts to become the go-to destination for chic and trendy products. It was also one of the first major retailers to carry the S’well water bottle, which has been copied by companies around the world.

The CEO of Indigo, Heather Reisman, is married to business tycoon Gerald Schwartz. Schwartz is the CEO of Onex, which recently purchased WestJet for $5 billion in cash.

Indigo is a solid company due to the potential to be acquired and a high working capital

Acquisition potential

Although relying on an acquisition to increase the value of a stock isn’t a good idea, there’s no company better positioned for a takeover than Indigo.

Aside from the CEO of Indigo being married to the CEO of one of Canada’s largest private equity firms, Indigo has proven that it’s able to change with the times and survive during economic downturns.

One way that Indigo has changed with the times is its expansion beyond books. As mentioned above, Indigo sells gifts, home furnishings, candy, toys, and electronics.

This has allowed the company to embrace a department store approach to sales whereby consumers can shop for multiple items under one roof. This is attractive to investors, as it indicates the company is not afraid to alter its business model to capitalize on opportunities.

Another attractive aspect of Indigo is the fact that it was founded in 1996. This means it has survived both the early 2000 dot-come bubble and the 2008-2009 recession. Given that books are not a necessity, this is very impressive.

Indigo’s counterpart in the United States, Barnes & Noble, was sold earlier this year to a hedge fund for $638 million, putting Indigo in a good position to be acquired as well.

High working capital

Working capital is the total assets of a company minus the total liabilities. Assets are used by a company to generate future revenues and ultimately future net income. A company with a high working capital has enough assets to cover its liabilities and then some.

This is beneficial, as the surplus of assets can be devoted to growing the business. Indigo has a working capital surplus of $370 million, which represents more than a third of its 2019 revenues. This is an important metric for investors, as this amount of money can be used to generate future profits.

Bottom line

Investors have been turned off by Indigo due to the assumption that the company is in a dying industry. I beg to differ.

In addition, the company has a working capital surplus, which means that it’s able to devote the majority of its assets to growing the business, ultimately driving net income.

While Indigo is an underdog on the stock exchange, I wouldn’t rule it out as a potential investment.

If you liked this article, click the link below for exclusive insight.

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 Chen Liu has no position in any of the stocks mentioned.

More on Investing

grow dividends

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally

Three TSX stocks are rising amid the elevated market volatility due to rate-cut uncertainties and geopolitical risks.

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

Here’s the Average CPP Benefit at Age 70 in 2024

Canadian retirees can supplement their CPP payout by investing in blue-chip dividend stocks such as Enbridge.

Read more »

woman data analyze
Tech Stocks

1 Stock I’d Drop From the “Magnificent 7” and 1 I’d Add

Tesla (NASDAQ:TSLA) stock is part of the Magnificent Seven, but Shopify (TSX:SHOP) is growing faster.

Read more »

Gas pipelines
Dividend Stocks

Is Enbridge the Best Dividend Stock for You?

Enbridge now offer a dividend yield of 8%.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, April 18

Rising metal prices could lift the main TSX index at the open today as focus remains on the ongoing geopolitical…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

2 Pandemic Stocks That Are Still Rising, and 1 Offering a Major Deal

There are some pandemic stocks that crashed and burned, while others have made a massive comeback. And this one stock…

Read more »

Supermarket aisle with empty green shopping cart

CRA: Will You Receive a Grocery Rebate in 2024?

The grocery rebate was introduced as a one-time tax credit for low-income Canadian households to offset higher prices.

Read more »

question marks written reminders tickets

BCE Stock’s Dividend Yield Hits 9%—Is it Finally Time to Buy?

BCE (TSX:BCE) stock has a super-swollen dividend yield right now as it passes 9%.

Read more »