The S&P/TSX Composite Index shed 86 points on Wednesday, May 10. Some of the worst-performing sectors on the day included battery metals, base metals, and the hefty Canadian energy sector. Canadians should be looking for discounts to take advantage of as volatility has reared its head in the month of May. Today, I want to zero in on an undervalued TSX stock that is worth aggressively stacking right now. Let’s jump in.
Why this TSX stock has been throttled in recent months…
Gildan Activewear (TSX: GIL) is a Montreal-based company that manufactures and sells various apparel products in the United States, North America, Europe, Asia-Pacific, and Latin America. Shares of this TSX stock have dropped 5.8% month over month as of close on May 10. The stock is still up 8.2% so far in 2023. Moreover, it shares are up 6.5% year over year. Investors can see more of its ups and downs with the interactive price chart included below.
This TSX stock is not the only Canadian equity to take a beating in the month of May. However, this sharp dip did follow Gildan’s most recent earnings release. Is this cause for concern? Let’s scour the company’s most recent earnings report.
Should investors be excited about Gildan Activewear’s future?
The company unveiled its first-quarter (Q1) fiscal 2023 earnings on May 3. President and Chief Executive Officer Glenn J. Chamandy said that management was “pleased with our top line results having met our sales expectations for the quarter.” However, Chamandy also warned that the uncertain macroeconomic environment would continue to present challenges for Gildan going forward.
In Q1 of fiscal 2023, the company saw net sales decrease 9% from the previous year to $703 million. This was largely due to broader economic headwinds that had a negative impact on overall demand. Activewear sales fell 12% from Q1 FY2022 to $588 million. Moreover, international sales dropped 17% compared to the prior year.
Adjusted gross profit at Gildan fell $55 million year over year to $184 million, driven by the sales decline in dip in gross margins. The challenging environment led to Gildan consuming considerably more of its cash flow in the first quarter.
Here’s why I’m snatching up shares of this undervalued TSX stock today
Gildan Activewear provided an outlook in its Q1 fiscal 2023 report. It forecasts that revenue growth will be in the low single-digit range. Meanwhile, it expects adjusted diluted earnings per share to fall in a similar range that it posted in fiscal 2022. Overall, management anticipates that Gildan is well positioned to hold ground in a difficult macroeconomic climate.
Shares of this TSX stock currently possess a favourable price-to-earnings ratio of 11. The Relative Strength Index is a technical indicator that measures the price momentum of a given security. Gildan Activewear stock fell into technically oversold territory last week but has since rebounded above the 30-point mark. This TSX stock last paid out a cash dividend of $0.186 per share, which represents a 2.4% yield.
