The Canadian equity market has trended higher over the past year, delivering notable gains. Despite this, several fundamentally strong stocks are still undervalued. While these stocks are trading at compelling valuations, they have significant room for growth, making them attractive long-term bets.
With this background, let’s consider the top three undervalued Canadian stocks.
Image source: Getty Images
WELL Health stock
Shares of the Canadian omnichannel healthcare company WELL Health (TSX:WELL) offer high growth and value near the current levels. The company is growing rapidly, led by momentum in omnichannel patient visits. Moreover, it consistently delivers solid organic sales and profitability, which has driven its stock price higher over the past years.
The momentum in WELL Health’s business will likely be sustained, driven by the strength in the Canadian Patient Services business, strategic acquisitions, and its growing network of physical and virtual clinics. Further, innovation and expansion of clinical offerings bode well for growth.
The company is on track to grow its sales and earnings, boost cash flow, reduce debt, and minimize net share issuances. These efforts are likely to support its financials and share price. Further, its focus on the development of new artificial intelligence (AI)-powered tools and solutions is likely to support its growth.
While WELL Health is poised to grow rapidly, its stock remains undervalued. WELL stock trades at the next-12-month (NTM) enterprise value-to-sales (EV/sales) ratio of 1.6, which is near the all-time low, providing a solid entry point for long-term investors.
goeasy stock
goeasy (TSX:GSY) is another undervalued stock with solid growth prospects. Shares of this subprime lender have consistently outperformed the broader markets and generated significant wealth for its investors. For instance, goeasy stock has gained over 208% in five years and about 903% in a decade. Further, the company has rewarded its shareholders with higher dividends over the past decade.
goeasy’s growing earnings base, expansion of its consumer loan portfolio, and solid credit underwriting capabilities position it well to deliver significant growth in the coming years. In addition, the company’s geographic and channel expansion, diversified funding sources, and new product launches augur well for growth.
While goeasy has solid growth prospects and is likely to dominate the large subprime lending market, its stock trades at an NTM price-to-earnings (P/E) ratio of just 8.9. Considering its double-digit earnings per share (EPS) growth and a dividend yield of about 2.7%, goeasy stock looks too cheap to ignore.
Overall, goeasy stock offers long-term investors a unique combination of value, growth, and income.
Lightspeed stock
Investors seeking value could consider Lightspeed (TSX:LSPD) stock. Shares of this cloud-based commerce platform provider are down over 11% year to date and have underperformed the broader markets due to macro uncertainty and fear of a slowdown in consumer spending. Moreover, Lightspeed stock trades at the NTM EV/sales multiple of 1.7, which is near the multi-year low.
Despite macro uncertainty, this tech company is growing at a healthy pace and is poised to benefit from the ongoing digital shift. Lightspeed also focuses on delivering sustainable earnings, which will likely support its share price.
The company’s focus on high gross transaction volume customers drives its average revenue per user and boosts its margins. Notably, these customers adopt Lightspeed’s multiple modules, which drives retention and leads to higher revenue per user. Further, the company is also likely to benefit from its strategic acquisitions, which expand its customer locations and accelerate its growth.
In summary, Lightspeed’s solid growth prospects and low valuation make it a solid long-term investment.
