Investing in value stocks is a solid strategy for investors looking to outpace the broader markets. Typically, you invest in stocks that trade below their intrinsic value and benefit from outsized gains when markets recover. Here are two such undervalued TSX gems you can consider buying right now.
Enerflex stock
An energy infrastructure company, Enerflex (TSX: EFX) is priced at 19.4 times forward earnings, which is quite cheap. Comparatively, its bottom line is forecast to improve from a loss per share of $1.04 in 2022 to adjusted earnings of $0.42 per share in 2023 and $1.03 per share in 2024.
Its two business lines, which include Energy Infrastructure and After-market Services, generate recurring sales and expanded their margins in Q2 2023. Additionally, the company’s Engineered Systems business booked $322 million in new orders in the quarter resulting in a backlog of $1.4 billion.
Enerflex continues to execute on the global backlog while operating its assets at high levels of utilization. Additionally, it is also streamlining operations to lower its cost base and improve financials. In the June quarter, Enerflex’s After-market Services business increased gross margins by 500 basis points, while Engineered Systems increased margins by 400 basis points.
Enerflex remains focused on reducing balance sheet debt and ended 2023 with a net-debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 2.5 times.
Due to strong business performance, an expanding portfolio, and widening margins, Enerflex reported an adjusted EBITDA of $142 million in Q2, up over 100% year over year.
The company invested $32 million in capital expenditures, $12 million of which included growth capex, directed at customer-sanctioned energy infra projects.
Enerflex also pays shareholders an annual dividend of $0.10 per share, indicating a dividend yield of 1.2%. Analysts remain bullish on Enerflex stock and expect shares to surge over 71% in the next 12 months.
Payfare stock
A small-cap financial services company, Payfare (TSX: PAY) stock is down 49% from all-time highs. Operating in the fintech space, Payfare offers digital banking and instant payment solutions for the gig economy.
Payfare has partnered with leading platforms and marketplaces such as Uber, Lyft, and Doordash to improve the financial health of the contract workforce.
In Q2 2023, Payfare increased sales by 43% year over year to $46.5 million. It remains on track to end 2023 with revenue between $185 million and $195 million, valuing the stock at less than two times forward sales.
Moreover, Payfare ended the June quarter with 1.2 million active users, up 34% from the year-ago period, allowing the company to record a total gross value of $2.9 billion on its platform. Its rapid top-line expansion meant Payfare could record an adjusted net income of $4.6 million, or $0.10 per share in Q2, compared to a net income of just $400,000 in the prior-year quarter.
Unlike other high-growth tech stocks, Payfare is profitable, with an adjusted EBITDA of $4.8 million and free cash flow of $0.6 million in Q2.
Payfare emphasized it was selected in two RFP (request for proposal) processes to launch new private label and embedded finance programs for strategic partners on its platform, which should drive sales in the near term.
Priced at 26 times 2023 earnings, Payfare stock trades at a compelling valuation. Bay Street forecasts Payfare stock to gain 70% in the next 12 months.
