On Friday, the shares of Montreal-based SNC-Lavalin Group (TSX:SNC) rallied by 16% against a 1.2% rise in the TSX Composite Index. With this, its stock beat one of the hottest cryptocurrencies, Dogecoin, last week. While the meme-based cryptocurrency has seen a massive rally in the last couple of months, it lost nearly 10% of its value last week.
SNC-Lavalin stock is beating Dogecoin
By comparison, SNC-Lavalin stock ended the week with solid 14.4% gains. Tesla CEO Elon Musk’s announcement about the company suspending the use of Bitcoin as a form of payment to purchase its cars took a big toll on the crypto investors’ sentiments. While the crypto market remains extremely volatile these days, I find the shares of fundamentally strong companies like SNC-Lavalin much better investment option for small retail investors. Before we discuss more on that, let’s find out why SNC-Lavalin stock staged a massive rally last week.
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SNC-Lavalin’s solid Q1 results
On May 14, SNC-Lavalin reported its solid Q1 results, as its actual adjusted earnings per share stood at $0.48. It was nearly 37% higher than analysts’ consensus estimates and showcased a massive improvement over its adjusted net loss of two cents per share in the same quarter of 2020.
While its adjusted revenue in the first quarter fell by 18% YoY (year over year) to $1.8 billion, it improved by 7% sequentially. It was also higher than analysts’ estimates of $1.7 billion. To add optimism, SNC-Lavalin’s adjusted EBITDA margin rose to 9.1% in the last quarter compared to just 3.9% a year ago.
Its SNCL engineering services segment revenue fell by 1.3% YoY. But it was still within its guidance range, as the COVID-19 didn’t have any major impact on its operations in the last quarter.
Is its stock better than Dogecoin?
SNC-Lavalin primarily provides engineering and construction solutions to a wide range of industries. As the energy demand — including the demand for oil, gas, and power generation — goes up in the coming quarters, I expect its stock to outperform the broader market.
SNC-Lavalin stock is currently trading at $32.54 per share with 48% year-to-date gains after losing 27% in 2020. Despite its strong recovery this year, its stock still looks undervalued, given its impressive future growth prospects.
I understand we shouldn’t ideally compare an industrial stock like SNC-Lavalin with a meme-based cryptocurrency like Dogecoin. However, I can’t resist doing that right now, as cryptocurrencies have become one of the hottest investment topics this year. A tweet from big celebrities like Elon Musk may trigger a sudden rally in Dogecoin prices. In contrast, even a single critical tweet by him about the cryptocurrency is enough to cause a massive selloff in it. That’s one of the reasons why Bitcoin — the oldest cryptocurrency — lost more than 20% of its value last week.
Such extremely high volatility is enough to wipe out years of savings within a few days. That’s why investors with low- to medium-risk appetite should consider investing in fundamentally strong companies like SNC-Lavalin for the long term rather than risking their money in the crypto market.
Currently, 11 out of a total of 13 Bay Street analysts covering SNC-Lavalin recommend a buy with a consensus price target of $36.65 per share. I find this price target to be very conservative and expect the stock to inch up much beyond this target in the coming quarters.
Overall, investing in stocks like SNC-Lavalin could yield handsome returns in the long term — without worrying about huge risks that come with cryptocurrency trading.
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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 Jitendra Parashar has no position in any of the stocks mentioned.