Why This Stock Has Nearly Doubled in Just 3 Months

Cargojet’s (TSX:CJT) stock has seen a massive 89.2% rally in the last three months. But can you still buy it? Let’s find out.

| More on:
Plane on runway, aircraft

Image source: Getty Images.

Some experts expect the ongoing pandemic to be disastrous for the global airline industry. However, cargo and charter airline business — a niche within the airline industry — is witnessing continued strength in demand. Investing in such small airline businesses seems to be yielding stable positive returns for investors.

In my recent article on June 11, I suggested investing in one such company — Cargojet (TSX:CJT). The company’s stock has risen by more than 19% in the last 10 days. The company is an Ontario-based air cargo services provider that provides its services primarily across North America. At the end of Q1, it had a fleet of 25 aircraft.

In this article, we’ll review some key drivers for Cargojet’s stock price rally and find out whether it’s still worth buying after the recent rally. But first, let’s take a closer look at its stock price performance against its peers.

Cargojet stock vs. peers

In the second quarter, Cargojet’s stock has thus far outperformed the broader market and its peers by a wide margin. It has inched up by about 61.9% — against a 16.0% rise in the S&P/TSX Composite Index. By comparison, the shares of its peers such as TFI International, Air Canada, Chorus Aviation, and Bombardier have risen by 45.8%, 17.7%, 12.6%, and 3.3%, respectively, on a quarter-to-date basis.

In the last three months combined, Cargojet’s stock has nearly doubled with 89.2% rise as of June 22.

Key positive factors

Cargojet reported its Q1 2020 earnings report on May 7. Despite the COVID-19 outbreak, the company posted an 11.4% year over year increase in its revenue — its highest quarterly revenue growth rate in the last five quarters. Its Q1 revenue growth rate was also much better than all its peers.

For example, while Air Canada’s revenue tanked by 16.4% year over year, Chorus Aviation reported a marginal 1.8% year-over-year rise in its revenue for the quarter.

Surprisingly, Cargojet’s gross margin also improved, as it reported a solid 26.18% adjusted gross margin in the first quarter. It was much higher as compared to 19.20% gross margin a year ago. It was the third quarter in a row that Cargojet’s gross profit margin improved on a year-over-year basis. As well, more demand for its all-in Charters business boosted its profitability.

Analysts are positive

Currently, 55% of 11 analysts covering Cargojet’s stock are recommending a “buy.” While 45% of them are suggesting a “hold,” no analyst is recommending a “sell.”  The analysts’ consensus price target for the stock is $139.75. However, its stock has already rallied above this target price. On June 22, Cargojet’s stock settled at $163.68.

Foolish takeaway

While the company’s stock has risen sharply in the last three months to its all-time high, it doesn’t mean that it can’t inch up further. Despite the ongoing pandemic, businesses worldwide would need to maintain stable supply chain — creating demand for cargo air services.

I believe that Cargojet may continue to benefit from higher demand for its cargo as well as its charter business. Due to its stable long-term business model and improving profitability despite the pandemic, consider buying Cargojet’s stock on dips.

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.

More on Coronavirus

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft
Coronavirus

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »

Senior housing
Stocks for Beginners

Home Improvement Stocks Are Set to Fall (When They Do, Buy These Like Crazy!)

Home improvement stocks are due to drop further in the coming months. But with solid underpinnings for the sector, it…

Read more »

An airplane on a runway
Coronavirus

Forget Boeing: Buy This Magnificent Airline Stock Instead

Boeing (NYSE:BA) stock is looking risky right now, but Air Canada (TSX:AC) stock? Much less so.

Read more »

Man considering whether to sell or buy
Stocks for Beginners

Goeasy Stock: Buy, Sell, or Hold?

When it comes to smart buys, goeasy stock (TSX:GSY) is up there as one of the smartest money can buy.…

Read more »

Woman has an idea
Stocks for Beginners

Here’s Why Magna International Is a No-Brainer Value Stock

Magna stock (TSX:MG) has been climbing back once more, but still offers huge value for long-term minded investors.

Read more »

Aircraft wing plane
Coronavirus

1 TSX Stock Down 60% That Could Bounce Back Stronger

Air Canada (TSX:AC) stock got severely beaten down in the March 2020 COVID crash. Here's why it's probably not going…

Read more »