The last year has been exceptionally strong for Canadian stocks, with the TSX Composite Index surging over 20%. However, not all growth stocks have joined the rally. While several high-growth companies have seen their valuations soar, some fundamentally strong stocks remain deeply undervalued, creating a potential once-in-a-lifetime opportunity for long-term investors.
One such stock has fallen 34% over the last year, massively underperforming the broader market. Yet, with a market cap of $4.3 billion and shares trading at just $59.53, this dividend-paying Canadian stock, BRP (TSX:DOO), could be poised for an incredible turnaround. Before I talk about why it could be your ticket to millionaire status, let’s take a closer look at the key reasons behind BRP stock’s poor performance.
Why this Canadian stock fell sharply
One of the biggest reasons BRP stock has struggled of late could be the softer demand for its products. In recent years, the company, known for its snowmobiles, watercraft, and off-road vehicles, has seen a decline in sales across all segments.
In the quarter ended in October 2024, BRP’s revenue dropped by 17.5% YoY (year over year), with North American retail sales slipping 11% from a year ago. Consumers tried to cut back on discretionary spending amid high inflationary pressures, which made it harder for BRP’s power sports products to fly off the shelves.
Another key factor was its push to clear out excess inventory. While this move was necessary to keep its dealer network healthy, it meant fewer shipments in the short term, hurting revenue. At the same time, BRP had to offer steeper promotions to move stock, which put further pressure on its margins.
This tough environment was clearly seen in the company’s latest financials. In the October quarter, BRP’s net profit fell a staggering 69.7% YoY to just $27.3 million, while gross profit tumbled 33.1% due to lower volumes and higher discounting. Nevertheless, despite the rough quarter, BRP reaffirmed its full-year guidance, projecting $7.6 billion to $7.8 billion in revenue.
Why this undervalued stock could still be a big winner
If you expect to earn some eye-popping returns on your investments in the long run, you should ideally focus on stocks that are temporarily undervalued but have strong long-term growth potential. BRP’s current challenges appear to be short-term headwinds rather than fundamental weaknesses, and as consumer spending rebounds amid declining interest rates and easing inflation, demand for its power sports products could follow.
In addition, the company is making bold moves to set itself up for long-term success. For example, it’s doubling down on its core powersports business and recently announced plans to exit its marine segment, allowing it to focus on its strongest brands.
The company also has a history of bouncing back. With a strong dealer network, exciting new products on the way, and plans for electric vehicles in the pipeline, BRP could be primed for a turnaround in the coming years. At its current price, down over 40% from its 52-week high, this could be a rare opportunity for long-term investors looking to grab an undervalued Canadian stock before it rebounds. In addition, BRP offers a 1.3% annualized dividend yield, providing some passive income while investors wait for a potential recovery.
