Everyone Is Talking About This Stock: Is It a Good Long-term Option?

NFI stock (TSX:NFI) reported record earnings this week, with a huge backlog and production ramp up. So why did shares only climb 2%?

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 21, 2023 12:30 pm EDT

The TSX today continues to be full of volatility, but that doesn’t mean investors aren’t looking for growth stocks. In fact, some companies have seen a surge in the last year, while others have dropped even further.

Yet one stock hitting the news lately has been NFI Group (TSX: NFI). The bus manufacturer recently reported earnings for investors. However, there were some warnings that came along with the numbers.

What happened

Shares of NFI stock reported another quarter that beat out earnings estimates. However, the quarter also had some downsides. NFI stock reported a loss of US$48.1 million for its latest quarter, which was an improvement from the loss of US$56 million the year before.

Revenue, however, surged by almost double. Compared to US$398 million in revenue last year, this year NFI stock boasted revenue of $659.6 million. The results also came with news that the company would be increasing its production for the second half of this year.

With the news, new full-year guidance came out as well. NFI stock expects to achieve revenue between US$2.6 and US$2.8 billion in 2023. This was an increase from between US$2.5 and US$2.8 billion made earlier in the year. Earnings before interest, taxes, depreciation and amortization (EBITDA) are now expected between US$40 and US$60 million, narrowing it further from between US$30 and US$60 million announced earlier.

But hold on

All of this looks like good news, right? But Chief Executive Officer Paul Soubry had a warning for investors. Temporary inefficiencies from supply-chain production that came about during the pandemic should continue not just next year, but through to 2025.

NFI stock still hasn’t fully recovered after its supply plunged during 2020. While there certainly has been a significant recovery, it still likely won’t be until 2025 when the stock is back at those levels. Still, vehicle deliveries climbed by 66% year over year, with its quarter-end backlog at 10,000 orders. This hit a record of US$6.7 billion!

By 2025, NFI expects to be back to around 1,500 units per quarter. This was similar to what it was producing back in 2019, Soubry said. Meanwhile, NFI stated there would be a private placement with an unnamed asset manager, in an effort to raise US$50 million and pay down debt.

Now what?

NFI stock was up just 2% on August 16 as the stock made its earnings announcement. So while the company reported record-setting results and sky-high revenue, the loss and future growth prospects seemed to bring things back down.

That being said, the stock looks valuable trading at just 11.1 times earnings as of writing. Shares are also still down 15% in the last year, providing some room for potentially major returns when the stock recovers. So there could certainly be an opportunity for future investors.

So if you have the time to wait, NFI stock looks like a valuable equity to hold in your portfolio, or at least have on your watchlist. In the next few years, as the company recovers, it could very well hit headlines again.