Is Waste Connections (TSX:WCN) Stock Undervalued Now?

WCN is a great wide-moat stock. Here’s the rundown on its valuation.

Warren Buffett famously said that investors should buy the stocks of great companies and hold them forever. At the Motley Fool, we take Buffett’s advice to heart and believe in the power of a long-term perspective when it comes to investing.

Although everyone likes to find a good, undervalued stock, sometimes it is better to buy the stock of a great company at an okay price, as opposed to the stock of a mediocre company at a good discount. The stocks of businesses with sustainable, excellent performance make ideal buy-and-hold stocks.

For this reason, new Canadian investors should focus on the stocks of blue-chip companies with excellent fundamentals, understandable business models, essential products and services, a wide economic moat, solid financial ratios, and good management.

calculate and analyze stock

Image source: Getty Images

Waste Connections

Waste Connections (TSX: WCN)(NYSE: WCN) provides non-hazardous waste collection, transfer, disposal, and recycling services in the U.S. and Canada. The company is considered a wide-moat stock — a quality that could help it maintain a strong competitive advantage for decades on end.

WCN’s wide-moat status comes from its intangible assets — things such as regulatory permits, government approvals, environmental assessments, etc. Disposing of garbage is a complex business — one with many barriers to entry and big competitors to dethrone.

It would be extremely difficult for a competitor to obtain all of those intangible assets within a reasonable time and cost to go head to head with WCN. That roadblock alone ensures that WCN faces little competition, giving it a wide moat status and helping to preserve its margins.

Valuation

WCN is solid enough of a company that I would not worry about trying to time a good entry price. However, new investors should always be aware of some basic valuation metrics, so they can understand how companies are valued and what influences their current share price.

Currently, WCN is extending gains since Monday and is currently trading at $162.26. In the current fiscal quarter, WCN’s 52-week low is $145.09, and the 52-week high is $183.55, which puts the current share price in the middle of the range.

WCN currently has a market cap of $42.28 billion with approximately 38.81 billion shares outstanding. This gives it an enterprise value of $47.9 billion with a enterprise value-to-EBITDA ratio of 26.59, similar to peers in the industrial sector.

For the past 12 months, the price-to-earnings ratio of WCN was 66.26, with a price-to-free cash flow ratio of 45.03, price-to-book ratio of 6.26, price-to-sales ratio of 6.6, and book value per share of approximately $26.08. By these metrics, WCN does not look undervalued.

WCN is currently covered by a total of 17 analysts. Of them, 17 have issued a “buy” rating, zero have issued a “sell” rating, and zero have issued a “hold” rating. This is generally a considered a very bullish sign.

WCN has a Graham number of $38.03 for the last 12 months — a measure of a stock’s upper limit intrinsic value based on its earnings per share and book value per share. Generally, if the stock price is below the Graham number, it is considered to be undervalued and worth investing in. In this case, WCN does not look undervalued.

Is it a buy?

Despite its current share price being more or less fairly valued, long-term investors should consider establishing a position if they have the capital. Over the next 10-20 years, your entry price won’t matter as much if WCN continues its strong track record of growth and profitability and maintains its wide-moat advantage. Consistently buying shares of WCN, especially if the market corrects, can be a great way to lock in a low cost basis.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Rocket lift off through the clouds
Tech Stocks

Can You Buy SpaceX Stock in Canada?

Space Exploration Technologies (TSX:SPCX) is a must-own for Elon Musk fans, but there are plenty of ways for Canadians to…

Read more »

Hourglass projecting a dollar sign as shadow
Stocks for Beginners

Start Investing by 35: Here’s What Time Could Do for Your Retirement

Starting retirement investing by 35 gives compound growth three decades to turn relatively modest contributions into something much larger.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, September 25

TSX investors will closely watch U.S. consumer sentiment and inflation expectations data today, while easing energy prices and potential progress…

Read more »

oil pump jack under night sky
Dividend Stocks

Forget GICs: This Dividend Stock Pays You 4% Monthly

GIC rates look thin after taxes. This top Canadian dividend stock pays you each month, yields about 4%, and covers…

Read more »

shopper chooses vegetables at grocery store
Investing

Here’s Why Canadian Investors Should Love Costco’s Stock as Much as Its Warehouses

Costco's Q3 results and August sales show why Canadian investors may want this warehouse giant in their portfolio for the…

Read more »

copper wire factory
Metals and Mining Stocks

Faraday Copper Stock Jumps 697% as Demand for Critical Minerals Heats Up

Given a favourable copper-price environment, a sizeable resource base, a solid financial position, and strong backing from the Lundin family…

Read more »

infrastructure like highways enables economic growth
Dividend Stocks

3 Savvy Ways Canadians Can Invest in the Country’s Infrastructure Boom

Find out how Prime Minister Carney's plans for Canadian infrastructure can benefit investors and revitalize key industries.

Read more »

young people dance to exercise
Tech Stocks

2 TSX Stocks to Buy With $3,000 Right Now

Two top Canadian TSX stocks just posted near 30% revenue growth. Here's why 5N Plus and Groupe Dynamite could be…

Read more »