It’s painful to watch a robust growth stock declining from its peak and struggling to recover, especially if you hold that stock, but it’s not an uncommon sight. It has happened with several stocks in the TSX, including Cargojet (TSX:CJT). The stock had an impressive performance history, spanning almost a decade before the pandemic. However, the stock has struggled since its fall from the 2020 peak.
While many fundamental strengths remain, and the stock is quite attractive at its heavily discounted state, they are irrelevant if a solid recovery is not in the cards. Let’s look into the probability of Cargojet’s recovery.
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The fundamental strengths
The most significant strength of Cargojet is its position as the premier cargo airline in Canada. It specializes in time-sensitive cargo and has an impressive fleet of 41 aircraft, running over 70 routes each day. This includes locations in North America, South America, and Europe. However, the most impressive aspect of its business’s “reach” is how much local market it has covered.
Cargojet represents about 90% of the domestic overnight air cargo lift available in the country, far outstripping its competitors, which include the national airline. This also strengthens its business model because, through its contracts with major cargo services operating in the country, about three-quarters of its domestic revenues are tied to long-term contracts that are regularly renewed.
Its financials aren’t its strongest trait, but they aren’t a significant weakness. The third-quarter (Q3) 2024 results were promising, especially in terms of net earnings, but a better picture might appear after the company releases full-year results for 2024. A positive yearly report might even become the catalyst for its recovery and growth.
The growth prospects
Considering its price-to-earnings ratio and other valuation metrics, it’s evident that the valuation isn’t an attractive aspect of this stock right now. Coupled with the fact that the stock is trading at a 55% discount right now, it doesn’t paint an auspicious picture for the stock. Another negative factor is that in the last nine months, there has been significant insider selling but no insider buying. However, its overall ownership structure is still healthy enough, with insiders and institutions owning 2.3% and 42.9%, respectively.
Now for the good news. Experts from several different institutions have set a target price for Cargojet that is much higher than what it’s currently trading at. A solid surge in e-commerce activity will be beneficial for the company as well, especially if it manages to secure contracts with e-commerce companies inside and outside Canada.
Foolish takeaway
The stock isn’t in a bad place per se, but a significant positive catalyst might be necessary to change the market sentiment around this stock. It has been pushed down to a small-cap stock despite being a giant in its market space, but even a modestly healthy recovery can fix that. And a full recovery can help you double your capital.
