The coronavirus bear market has crushed nearly every stock. Even high-quality companies are now on sale. Just look at Boyd Group Services (TSX:BYD.UN).
In 2015, Boyd stock traded at $50. A few weeks ago, shares topped $230. And that was only its recent performance. Since 2006, shares have increased by more than 10,000%!
Then the downturn began. This stock almost never goes on sale, yet coronavirus fears have sent shares lower by 40%. If you want to buy dirt-cheap growth stocks that can send your portfolio zooming during the next upturn, Boyd should be at the top of your list.
Built for the long term
Boyd has a simple recipe for success.
Years ago, it realized that the collision repair industry in the U.S. and Canada was extremely fragmented. The vast majority of the market was controlled by independent shops, often consisting of only one or two stores. No single entity controlled more than 1% of the market.
The industry was ripe for consolidation.
Let’s say there’s a small market collision repair centre located in Alberta. The owner is approaching retirement age, but there are few buyers for this type of establishment. This situation is playing out all across North America. As one of the only bidders, Boyd can secure bargain valuations for these locations. The owners are often glad simply to have an exit opportunity.
Boyd then injects some capital into the business for repairs and value-adding services. It then cuts out all redundant back office expenses and transitions the location for free cash flow generation. That’s it!
Over the years, Boyd has acquired hundreds of locations. Acquisitions are cheap, and the benefits of scale are immense. All the company has needed to do is repeat this strategy again and again.
This is a dirt-cheap growth stock
Even after years of growth, Boyd still has a long runway for future expansion.
Today, there are 32,000 collision repair shops in the U.S. and 4,600 shops in Canada. Boyd, the largest competitor in the industry, operates only 682 locations. The company could quadruple in size again and still control less than 8% of the market.
Last quarter, the company earned $1.04 per share. That’s an annual rate of $4.16. After the market crash, shares trade at $97 apiece, implying a valuation of just 23 times trailing earnings. That’s an outright steal for a company that has delivered a 10,000% return since 2006 and has many years of growth ahead of it.
The best news is that Boyd’s business is recession-resistant. Even during an economic collapse, vehicle accidents still occur. More than 90% of Boyd’s business is covered by insurance payments, so there’s not much incentive for a customer to skip out on repairs.
If a severe recession hits, Boyd’s profits will barely be impacted due to the recession-resistant nature of its business model. Better yet, it will be able to consolidate the market even faster than before and at better prices. That’s because Boyd is the only publicly traded company that operates collision repair facilities.
Boyd has more than $250 million in cash and credit available to make additional purchases. The business as a whole, meanwhile, is generating more than $20 million in quarterly free cash flow.
Now trading at a 40% discount, the coronavirus crash has made this proven growth stock too cheap to ignore.
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Fool contributor Ryan Vanzo has no position in any stocks mentioned.