Investors seeking long-term returns often turn to undervalued stocks as a strategy to build wealth over time. These stocks have the potential for significant appreciation, as their true value becomes recognized by the market. In 2023, one such undervalued gem is CCL Industries (TSX: CCL.B), a company that not only meets the criteria for undervaluation but also offers compelling reasons to hold for the long term.
Finding undervalued stocks
Identifying undervalued stocks requires a comprehensive analysis of various financial metrics. Here are some key factors to consider when searching for these hidden opportunities:
- Price-to-earnings (P/E) ratio: The P/E ratio is a fundamental measure of valuation. It compares a company’s current stock price to its earnings per share (EPS). A lower P/E ratio may indicate that a stock is undervalued.
- Debt-to-equity (D/E) ratio: The D/E ratio assesses a company’s financial leverage. A lower D/E ratio implies less financial risk and can be a sign of stability.
- Enterprise value-to-earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio: This ratio is used to assess a company’s total value compared to its earnings before interest, taxes, depreciation, and amortization. A lower EV/EBITDA ratio suggests that a stock may be undervalued.
- Share performance: Analyzing a stock’s historical price performance is crucial. A significant drop in share price over time may indicate an undervalued stock, particularly if the underlying business remains strong.
- Time on the market: Some undervalued stocks may have been overlooked by investors for an extended period. A company that has been trading for a while but has not gained significant attention could be an attractive opportunity.
CCL fits the bill
CCL Industries is a prime example of an undervalued stock that investors should consider in 2023. Let’s examine the key metrics:
- P/E ratio: CCL boasts a P/E ratio of 16.46, which is lower than the industry average, indicating potential undervaluation.
- Debt-to-equity ratio: With a D/E ratio of 0.51, CCL demonstrates strong financial health and prudent management of debt.
- EV/EBITDA ratio: CCL’s EV/EBITDA ratio stands at 9.28, suggesting that the company’s enterprise value is relatively low compared to its earnings potential.
Despite these favourable numbers, CCL’s shares have faced a decline of 13% in the past year, presenting an enticing opportunity for investors looking for a deal.
Why CCL stock?
CCL stock is a global leader in specialty label and packaging solutions. The diversified product portfolio spans across various industries, including healthcare, automotive, consumer goods, and electronics. This diversification makes CCL resilient to economic downturns. This makes it an attractive long-term investment option, even in challenging economic scenarios.
Furthermore, CCL’s recent earnings report for the second quarter of 2023 reinforces its potential. Sales for the second quarter (Q2) of 2023 increased by 1.8% to $1,644.5 million compared to the same period in 2022, with acquisition-related growth and a favourable foreign currency impact offsetting an organic decline.
Operating income for Q2 2023 was $242.0 million, slightly lower than the previous year but impacted by non-cash accounting adjustments and currency translation. The company incurred restructuring and other expenses of $2.9 million, primarily related to reorganization charges and transaction costs associated with acquisitions. These costs are part of CCL stock’s strategic growth plans.
Bottom line
In conclusion, CCL stock stands out as a prime example of an undervalued stock with significant long-term potential. Its attractive P/E ratio, healthy D/E ratio, and low EV/EBITDA ratio make it an appealing option for investors seeking value. While its shares have faced a recent downturn, the company’s diverse product portfolio and solid financial performance suggest that this may be a temporary setback.
With a global presence and a focus on innovative packaging solutions, CCL is well positioned to thrive in various economic conditions. As investors look for opportunities in 2023, CCL stock’s 13% drop presents an excellent entry point, making it one of the most undervalued stocks to consider adding to your portfolio today. Remember, undervalued stocks often hold the key to building substantial wealth over the long term.
