Investing in quality, undervalued stocks trading on the TSX is a proven strategy for building long-term wealth over the upcoming decade. In this article, I have identified two such TSX stocks that are well-positioned to deliver outsized gains to shareholders in 2025 and beyond. Here’s why I’d invest $3,000 in these two top Canadian stocks right now.
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Is this TSX stock a good buy?
Valued at a market cap of $191 million, DIRTT Environmental (TSX:DRT) is an interior construction company in Canada. It provides an industrial construction system serving companies across various sectors, including healthcare, military, technology, and hospitality.
DIRTT Environmental Solutions closed 2024 with solid financial results, reporting fourth-quarter (Q4) revenue of $48.9 million. It reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $5.5 million, a $1.2 million increase from the year-ago quarter. DIRTT maintained healthy gross profit margins of 35.9%, down from 37.8% in the same period last year.
The company has significantly strengthened its financial position, reducing long-term debt from $56.1 million to $22.4 million over the past 12 months, resulting in a leverage ratio of approximately 1.5 times. Its cash reserves grew to $29.3 million, up from $24.7 million at the end of 2023, with $39.3 million in total liquidity, which includes an undrawn credit facility.
DIRTT’s 12-month forward sales pipeline stood at $278 million as of January 2025, representing a $31.3 million increase after accounting for project phasing adjustments. CEO Benjamin Urban highlighted that DIRTT is proactively preparing for potential trade challenges, including the threat of 25% tariffs on Canadian imports to the United States.
Notably, its dual manufacturing presence in both countries provides strategic flexibility to mitigate impacts by adjusting material sourcing and manufacturing locations.
Analysts expect DRT stock to increase its adjusted earnings per share from $0.03 in 2024 to $0.10 in 2028. If the TSX stock maintains an average price-to-earnings multiple of 15 times, it will trade around $1.5 in early 2028, indicating an upside potential of 50% from current levels.
Is this small-cap TSX stock undervalued?
Valued at a market cap of $616 million, Mattr (TSX:MATR) operates as a material sciences company that serves the infrastructure, energy, and transportation markets worldwide. It operates through three segments:
- Composite Systems: The segment manufactures flexible composites that are used for oil and gas gathering and other applications.
- Automotive and Industrial: This segment manufactures heat-shrinkable products, including thin-, medium-, and heavy-walled tubing.
- Pipeline and Pipe Services: The segment offers ultrasonic and radiographic pipeline girth weld inspection services to pipeline operators and construction contractors.
Bay Street expects Mattr to increase its adjusted earnings from $0.70 per share in 2024 to $1.92 per share in 2027. Moreover, its free cash flow is forecast to touch $146 million in 2028, compared to a $59 million outflow in 2024.
Priced at 5.2 times forward earnings and 4.2 times forward free cash flow, the TSX stock is quite cheap. If MATR stock is priced at 10 times forward FCF, it should more than double over the next three years, easily outpacing the broader markets.
