The equity market rebounded strongly over the past year as concerns about recession subsided amid moderating inflation. Adding to the positives, investors’ appetite for risk increased, leading to the stellar recovery in most Canadian stocks.
However, shares of not all fundamentally strong companies participated in this recovery rally. A few continue to trade at a discount, presenting an excellent buying opportunity for investors with a long-term outlook.
Against this backdrop, here are three struggling stocks worth buying at a discount.
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Lightspeed Commerce
Shares of Lightspeed Commerce (TSX: LSPD) have witnessed a significant pullback of more than 36% from the 52-week high. Management’s cautious near-term outlook amid macro uncertainty weighed on this technology stock. Despite the short-term concerns, Lightspeed’s fundamentals remain strong while it continues to deliver solid organic sales, lowering its cash burn, and is heading towards achieving profitability.
The successful introduction of its unified payments initiatives and an expected increase in customers switching to its unified suite of tools are likely to drive its revenue in the coming years. Notably, Lightspeed’s gross payment solutions are growing swiftly. However, it accounts for only 29% of its gross transaction volume (GTV). This implies that Lightspeed has a significant runway for future growth.
What stands out is that Lightspeed’s customer locations generated over $500,000, and GTV increased by 7% annually during the last reported quarter. The steady growth in its high-value customer base will likely drive its average revenue per user, lower churn rate, and drive profitability. Further, Lightspeed will likely benefit from its accretive acquisitions, which will drive its customer locations and new product launches.
Lightspeed will likely capitalize on the ongoing shift in selling models towards omnichannel platforms. Further, its initiatives to drive average revenue per user and profitability are positives. Meanwhile, Lightspeed stock is trading at the next 12-month enterprise value/sales multiple of 1.3, which is near the all-time low and much below its historical average.
Aritzia
Aritzia (TSX: ATZ) has gained about 29% year to date. However, it is still trading about 21% lower from its 52-week high. While Aritzia stock fell due to the moderation in its growth rate, its focus on introducing new styles and expanding geographically will likely reaccelerate its growth and support the upward trend.
The company is expanding its offerings by introducing new product assortments and opening new boutiques, which will likely drive its revenue growth. For instance, its new boutiques are performing exceptionally well and have shorter payback periods, which is positive. Further, the company is broadening its omnichannel offerings and enhancing the shopping experience on its e-commerce platform. Moreover, the company has established a new distribution facility, which will likely reduce its inventory management costs and cushion its margins.
Overall, Aritzia’s top line is forecasted to increase at a double-digit rate in the coming years. Moreover, its earnings could grow faster than sales, leading to a rally in its share price.
WELL Health
Down about 31% from its 52-week high, shares of WELL Health (TSX: WELL) could be a solid addition to your portfolio near the current levels. The stock is trading at the next 12-month enterprise value/sales multiple of 1.6, which is much lower than its historical average of about five.
While WELL Health stock is trading cheap, it continues to deliver solid revenue growth and positive adjusted net income. For example, WELL Health has delivered its 20th consecutive quarter of record quarterly revenue. This growth is driven by the continued increase in omnichannel patient visits.
In addition, its focus on streamlining its operations and implementation of the cost-optimization program to drive efficiency is supporting its profitability. Overall, its high growth, strategic acquisitions, and new artificial intelligence-powered products support its bull case. Moreover, its low valuation presents a good entry level.
