Down 50% From All-Time Highs, Is Adentra Stock a Buy, Hold, or Sell Right Now?

Adentra stock has surged more than 1,000% in the last 12 years. But ADEN stock is also down 50% from all-time highs.

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Several TSX stocks have lost momentum in the last 15 months due to rising interest rates, inflation, supply chain disruptions, and geopolitical tensions. But investing in the stock market requires a ton of patience and the ability to withstand near-term volatility.

While companies are trading at depressed valuations right now, a bear market is eventually replaced by a multi-year bull run. So, the time is ripe for identifying beaten-down stocks trading at a cheap valuation that are well poised to deliver market-thumping returns on the rebound.

One such TSX stock is Adentra (TSX:ADEN), which has slumped close to 50% from all-time highs. So, let’s see if ADEN stock is a falling knife or an undervalued gem.

Adentra is a small-cap stock

Valued at a market cap of $570 million, Adentra is an architectural products distributor in North America. It enjoys a leadership position across several geographies and high-potential end markets. The company has a track record of delivering growth organically and via accretive acquisitions.

ADEN stock went public in July 2011 and has since delivered returns of more than 1,000% after adjusting for dividends. In this period, the TSX index has gained just 114%. The company managed to deliver outsized gains, as it increased sales from $897 million in 2019 to $3.55 billion in 2022. Moreover, in the last five years, its adjusted earnings per share surged by 48% annually.

But why is ADEN stock down in the dumps in the past year? Well, it seems the company will experience negative top-line growth and compression in profit margins this year.

Analysts tracking the stock expect Adentra’s sales to fall by 12.6% year over year to $3.1 billion in 2023. Comparatively, adjusted earnings are forecast to decline by 58% to $3.26 per share.

Adentra expects a challenging macro environment to negatively impact its financials in the near term, resulting in a moderation of product demand which might lead to softer product pricing and volumes.

But the company is confident of navigating these market conditions, as it continues to expand end market participation and now services customers part of sectors, such as residential construction, repair & remodel, and commercial.

Equipped with a diverse product mix, Adentra emphasizes that no single product category exceeds 20% of total sales. Its size, expanded market channels, and enviable product mix reduce its exposure to any particular segment or geography.

Adentra also maintains a strong balance sheet and ended 2022 with more than $250 million of undrawn liquidity on its credit facilities.

During the earnings call, Adentra chief executive officer Rob Brown stated, “On a multi-year basis, we continue to see runway for growth and value creation as we benefit from our leading market position, the long-term fundamentals underpinning the North American buildings products market, and our proven strategies for achieving profitable growth.”

ADEN stock pays investors a dividend, too

Adentra pays investors annual dividends of $0.52 per share, indicating a forward yield of 2%. In the last 10 years, these payouts have increased at an annual rate of 15.8%.

ADEN stock is priced at 0.2 times forward sales and eight times forward earnings, which is quite cheap. Analysts remain bullish on Adentra and expect shares to surge over 80% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Adentra. The Motley Fool has a disclosure policy.

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