With plenty of stocks on the TSX selling off over the last year and tonnes of news about the state of the economy and markets constantly dominating headlines, it can be difficult to stay up-to-date with the performance of every single stock. So you may not have noticed that Neighbourly Pharmacy (TSX: NBLY) stock has declined by more than 20% in the last eight months.
To date, Neighbourly Pharmacy is trading more than 33% off its 52-week high, a significant discount for such a high-potential growth stock.
So let’s look at whether the discount is justified, or if Neighbourly Pharmacy is one of the best stocks to buy today.
What makes Neighbourly an intriguing investment?
Neighbourly Pharmacy is one of the top stocks to keep on your radar, especially in the current market environment because it offers both defensive qualities and long-term growth potential.
As you may have guessed, Neighbourly operates a network of pharmacies with approximately 287 locations across seven provinces and one territory. This massive network offers not only diversification but also significant scaling potential, especially as Neighbourly continues to grow rapidly by acquisition.
For example, at the end of fiscal 2019 and 2021, Neighbourly stock owned 61 and 132 locations, respectively. By the end of fiscal 2023, that number had jumped to over 280, showing just how quickly Neighbourly is expanding its footprint.
It’s this growth-by-acquisition model, in an industry that’s highly defensive, that makes Neighbourly such an intriguing investment. There are plenty of growth-by-acquisition stocks that have earned investors significant gains over the years.
And what’s most exciting is that as these companies continue to grow by acquisition, the profit potential increases exponentially. This is due to not only the improved margins as Neighbourly scales its business, but also the organic growth it can generate.
As Neighbourly acquires new locations, it rebrands them as its own, which not only helps to increase customer loyalty to its brands; it also helps to increase the brands’ recognition all across the country.
Plus, in addition to its long-term growth potential, the company continues to put up a strong performance in the near term as evidenced by the continued revenue growth in the second quarter of its fiscal 2024 year.
Neighbourly stock reported another quarter of revenue growth showing why it’s one of the best stocks to buy now
In its second-quarter earnings report for fiscal 2024, which came out in late October, Neighbourly’s revenue increased to $203.2 million, up 13.6% compared to the prior year’s $179 million in sales.
Roughly 75% of that growth was driven by its newly acquired pharmacies. Meanwhile, same-store sales growth continued on a strong trajectory for Neighbourly stock, increasing another 4% in the quarter.
On the bottom line, Neighbourly’s adjusted net income was $5.7 million, or $0.13 per share, compared with an adjusted income of $5.1 million, or $0.12 per share, in the second quarter of 2023. Neighbourly stock also beat the consensus expectations, as analysts were expecting adjusted earnings per share to fall to $0.11.
The second quarter was more evidence of strong performance by Neighbourly stock. For the full year, analysts estimate revenue will grow by over 22% and another 15% next year.
Furthermore, analysts expect that its earnings before interest, taxes, depreciation and amortization (EBITDA) will also rise by over 22% this year and another 22% again next year as Neighbourly stock continues to scale its costs.
Therefore, with the stock trading at a forward enterprise value (EV) to EBITDA ratio of just 10.3 times today, it’s certainly one of the top stocks to consider for your portfolio.
That’s a considerably cheap valuation, especially for a high-potential growth stock like Neighbourly. Furthermore, it’s also well below the average it has traded at since going public in May 2021, of 14.2 times EBITDA.
So if you’re looking for a stock you can buy cheap today and also has years of growth potential ahead of it, Neighbourly is certainly one of the best stocks on the market.
