The market volatility surrounding the equity markets in 2025 presents an enticing buying opportunity for those with a sizeable risk appetite. In this article, I have identified two top undervalued Canadian stocks you can buy right now and benefit from outsized gains when investor sentiment recovers.
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Is this tech stock a good buy right now?
Kraken Robotics (TSXV: PNG) reported robust year-to-date financial results for 2024 despite a slight dip in third-quarter (Q3) revenue. The Canadian underwater technology company saw consolidated revenue surge 52% to $63.2 million for the first nine months of 2024, while net income more than doubled, jumping 117% to $6.4 million.
Product revenue climbed 45% to $47.8 million year to date, while service revenue showed even stronger growth, increasing 79% to $15.4 million. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 64% to $13.7 million, with margins expanding to 22% from 20% in the comparable period.
“Fiscal 2024 is on track to be another record year for Kraken, driven by strength across defense and offshore energy end markets where there is increased focus on surveillance and security of critical underwater infrastructure,” said Chief Executive Officer (CEO) Greg Reid.
Despite the impressive nine-month performance, Q3 revenue declined 4% year over year to $19.5 million. Net income dropped 29% to $1.6 million, primarily due to higher financing costs from a credit facility entered in April 2024.
The company recently completed a $51.7 million equity financing, strengthening its balance sheet with over $115 million in new equity and committed credit facilities in 2024.
Investors should note that risks remain while Kraken maintains its 2024 guidance of $90-100 million in revenue and $18-24 million in adjusted EBITDA. These include intense competition in underwater robotics, potential delays in defence procurement cycles, and execution challenges in scaling production to meet the growing demand for subsea batteries and other underwater technologies.
Is the TSX stock undervalued?
Celestica (TSX: CLS) reported strong Q4 results, with revenue reaching $2.55 billion, at the high end of guidance, and adjusted earnings per share (EPS) of $1.11, exceeding expectations. The Toronto-based electronics manufacturing services provider saw particularly robust demand in its Connectivity & Cloud Solutions segment, which surged 30% year over year on the back of networking products for hyperscaler customers.
Celestica has raised its 2025 outlook, now projecting $10.7 billion in revenue (up from $10.4 billion previously), representing 11% growth, with adjusted EPS expected to reach $4.75, a 22% increase. Free cash flow guidance was also raised to $350 million.
“The growth of our AI [artificial intelligence] platforms, along with exceptional execution by our entire team, continue to be the engines of our strong performance,” said CEO Rob Mionis.
Celestica announced two significant contract wins: a second 1.6T switching program with a major hyperscaler and a landmark deal with a leading digital native AI company for a fully integrated AI system rack, expected to become a similar-sized customer to its largest hyperscalers.
Despite these positive developments, investors should consider company-specific risks. First, customer concentration remains high, with two customers accounting for 24% and 12% of Q4 revenue, respectively. Celestica also faces a temporary decline in enterprise revenues due to technology transitions in its AI compute programs, which could create volatility.
Potential tariff changes under the new Trump administration could also disrupt global supply chains. However, management noted customers are currently in “wait-and-see mode” while Celestica maintains manufacturing flexibility across multiple regions.
Analysts expect the TSX stock to increase adjusted EPS from $3.88 in 2024 to $4.83 in 2025 and $7 in 2027. If the stock is priced at 30 times trailing earnings, it will trade around $210 in early 2028, indicating an upside potential of 63% from current levels.
