The Canadian stock market is going through a rough phase lately, as rapidly rising interest rates amid high inflation keep investors on edge. Despite starting the year on a bullish note by gaining 3.7% in the first quarter, the TSX Composite benchmark currently trades with roughly 2% year-to-date losses at 19,021. In the September quarter alone, the index lost 3% of its value, reflecting gradually growing pessimism among investors.
While the stock market selloff might worry new investors, well-experienced long-term investors tend to see such selloffs as an opportunity to buy some quality undervalued stocks. This is because the market selloffs might temporarily hurt the share prices of nearly all stocks, but fundamentally strong stocks have the ability to recover quickly as soon as the market environment improves.
In this article, I’ll talk about an undervalued TSX stock that also has a solid upside potential, according to Street analysts.
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An undervalued TSX stocks to buy today
After rising 24.5% last year, shares of Bombardier (TSX: BBD.B) seem to be struggling in 2023. Bombardier stock currently trades at $45 per share with about 14% year-to-date losses, trimming its market cap to $4.5 billion.
Does this weakness make it look undervalued? Before we discuss that and look at some key factors that can drive its share prices in the near future, let’s quickly review what Bay Street analysts expect from the stock.
Analysts see a huge upside potential
According to the Yahoo Finance data, 12 out of a total of 20 analysts (or 60 %) covering Bombardier stock gave it a “buy” rating as of October 3. At the same time, the average of 13 analysts’ price targets for the stock was $82 per share, reflecting an upside potential of more than 80% from its current market price of $45 per share.
However, it’s important to note that Street analysts’ consensus data keep changing from time to time and shouldn’t be the sole reason for you to make any investment decision. Instead, you should carefully analyze a stock’s long-term fundamental growth outlook before investing your hard-earned money into it.
What factors could drive this undervalued TSX stock higher
In the last few years, Bombardier has tried to transform its business and currently focuses primarily on its business jet designing, manufacturing, and servicing segments. Despite that, its revenues are still well diversified geographically, with the United States, Europe, and Asia-Pacific being its three largest market segments.
In 2022, the company’s total revenue grew positively by about 14% year over year to US$6.9 billion. More importantly, higher deliveries, favourable aircraft mix, strong aftermarket performance, and higher selling prices helped it post adjusted annual earnings of $0.74 per share in 2022, showcasing massive improvement over its adjusted net loss of $3.75 in the previous year.
Going forward, you can expect Bombardier’s financial growth trends to see more improvements as it remains on track to further increase its annual deliveries. Higher aircraft deliveries and manufacturing at scale should also have a positive impact on its profit margin.
Besides these positive factors, the strengthening demand for its aircraft makes Bombardier stock look way too undervalued, in my opinion. That’s why I wouldn’t be surprised if this undervalued TSX stock witnesses a massive rally in the coming years.
