While the S&P 500 index has staged a remarkable comeback in 2023, gaining almost 19% year to date the TSX index has returned less than 4% in this period. It indicates there are several Canadian stocks across sectors trading at a discount to their intrinsic value.
Here are three undervalued Canadian stocks set for a bull run if market sentiment improves.
Dye & Durham stock
Valued at $700 million by market cap, Dye & Durham (TSX: DND) stock is down 76% below all-time highs. With operations in Canada, the U.K., Ireland, South Africa, and Australia, Dye & Durham provides practice management solutions to legal professionals while delivering crucial data insights to support critical corporate transactions.
While sales were flat year over year at $120 million in the fiscal first quarter (Q1) of 2024 (ended in September), the company ended the quarter with $117 million in annual recurring revenue, or ARR.
Its ARR now accounts for 27% of total sales, up from just 13% in the year-ago period. An increase in recurring revenue should allow the company to generate stable cash flows across business cycles.
Dye & Durham recently disclosed plans to generate additional capital to de-lever its balance sheet and reduce leverage to less than four times the total net-debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization). It might include the potential sale of non-core assets, which might include offloading its financial services business.
DND stock trades at 1.7. times forward sales and at a discount of 67% to consensus price target estimates.
Real Matters stock
Down 80% from all-time highs, Real Matters (TSX: REAL) is valued at $420 million by market cap. A technology and network management company, Real Matters offers residential mortgage appraisals to the mortgage lending industry in North America.
The demand for its services reduced significantly in the past two years, due to rising interest rates and a sluggish macro environment. But Real Matters is forecast to increase sales by 13.7% to $66 million in fiscal 2024 (ending in September) and by 32% to $87.3 million in fiscal 2025. This impressive growth will allow Real Matters to end fiscal 2025 with earnings of $0.2 per share compared to a loss of $0.04 per share in fiscal 2023.
In the September quarter, Real Matters launched six new clients and new channels south of the border. It ended Q4 with $42 million in cash and no debt and trades at a discount of over 10% to consensus price targets.
Cargojet stock
The final TSX stock on my list is Cargojet (TSX: CJT), which is down over 50% from record highs. Cargojet operates domestic air cargo network services between 16 Canadian cities. It provides aircraft to customers on an aircraft, crew, maintenance, and insurance basis, operating between points in the Americas and Europe.
With a fleet of 39 aircraft, Cargojet transports over 25 million pounds of cargo weekly. A weak macro environment has impacted consumer demand in recent quarters, driving sales and profit margins lower in the last three quarters.
However, Cargojet’s cost-saving efforts and improvements in the business environment should help it increase sales by 6.5% to $962 million and earnings by 16% year over year in 2024.
Analysts remain bullish and expect the TSX stock to gain 24% in the next 12 months.
