Apparently, the results were way below expectations, implying that analysts were overly optimistic about the space stock. Specifically, in the first quarter, Maxar only increased its revenue by about 3% to US$392 million. Importantly, it reported a net loss of US$84 million, which was worse than the prior-year quarter’s net loss of US$48 million. This translated to a diluted net loss of US$1.30 per share, which was worsened by an 8% increase in the number of outstanding common shares. The adjusted EBITDA wasn’t as bad as it declined by 13% to US$67 million.
Although Maxar’s debt levels remain high, its debt-to-equity ratio improved meaningfully from 3.8 times a year ago to 2.5 times at the end of Q1 2021. This was due primarily to the company reducing its long-term debt by US$316 million to approximately US$2.1 billion and increasing its stockholders’ equity by 33% to US$1.2 billion.
After Tuesday’s correction, Maxar stock once again trades at a decent valuation, providing a discount of about 36% from its 12-month price target of US$45.90, which also suggests roughly 58% near-term upside potential.
Maxar stock could experience a dead-cat bounce from speculative traders. More likely, it’s going to experience more downward pressure over the next three to six months. It might be wise to forget the space stock for now.
Instead, turn your attention to this Canadian growth stock that can also deliver big gains but have a better balance sheet and price momentum.
Don’t miss this Canadian growth stock for big upside potential!
Talk about strong price momentum! Converge Technology Solutions (TSX:CTS) has consolidated in a sideways channel since the start of the year. Compared to Maxar stock, Converge stock is relatively unknown, as it just graduated from the TSX Venture Exchange to the TSX a few months ago.
The Canadian growth stock five times investors’ money over the last 12 months! Much of that growth was thanks to management’s successful M&A strategy. Last year, Converge completed five acquisitions across North America, including businesses based in Quebec, Saskatchewan, Texas, and Missouri.
In 2020, Converge’s revenues climbed by 38% to almost $949 million, while its adjusted EBITDA almost doubled to north of $60 million!
Along its growth path, the tech stock has raised capital from the equity market. Converge raised $109 million of equity in 2020. At the end of 2020, its stockholders’ equity increased by 47% versus the year end of 2019. It raised another $86.5 million from the stock market in January 2021 for $4.85 per share. The stock is approximately 34% higher from that level, suggesting it’s making good use of that capital.
Converge’s long-term debt-to-equity ratio declined from 1.02 times at the end of 2019 to 0.86 times at the end of 2020. Additionally, its long-term debt-to-capital ratio is about 5%. So, it has a clean balance sheet.
It already made two acquisitions so far in 2021. With a strong balance sheet, it has the capacity to take on more acquisitions.
Analysts are optimistic that the tech stock could turn a profit by year end. Currently, they believe the Canadian growth stock is undervalued by 30% and can appreciate about 43% over the next 12 months.
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The Foolish takeaway
Maxar stock and Converge are two very different businesses. Although both are undervalued, I prefer the small tech stock that is only about five years old, just crossed the $1 billion market cap, and still has lots of growth potential over the next five years.
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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 Kay Ng owns shares of Converge. The Motley Fool recommends MAXAR TECHNOLOGIES LTD.