One of the most important skills when it comes to investing is recognizing when certain TSX stocks are trading at an undervalued price, or in other words, below their intrinsic value.
That’s how you make significant returns on your investments, not only by buying high-quality companies, but also by buying them as cheaply as possible.
The intrinsic value of a company is essentially what a business is truly worth, based on its fundamentals, not what the stock price says on any given day. This is based on several factors, such as the company’s assets, cash flow, future growth potential, competitive position, and any other factors that add value to the operations.
The goal is to identify high-quality businesses that the market is temporarily missing. However, there’s no single formula that gives you a perfect number. In fact, investors employ a range of methods, including discounted cash flow models, various valuation metrics, and even qualitative analysis to determine a business’s worth.
Buying stocks below intrinsic value isn’t just about the potential for higher gains, though. In addition, when you buy a stock for less than what it’s actually worth, you give yourself a built-in margin of safety. So, even if the business doesn’t explode in growth overnight, the discount helps protect your downside.
It’s worth noting, though, that buying cheap stocks just for the sake of it is a bad strategy. It’s still paramount to find high-quality companies to invest in with solid management, dependable revenue, and long-term tailwinds.
However, when you can combine quality and a discounted price, that’s where you find the best opportunities. So, with that in mind, if you’ve got cash you’re looking to invest, here are two high-quality TSX stocks trading below their intrinsic value today.
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One of the top TSX stocks to buy now
If you’re looking for a high-quality TSX stock to buy now while it trades below its intrinsic value, goeasy (TSX:GSY) is undoubtedly one of the best.
goeasy has been one of the best-performing growth stocks on the TSX over the last few years, thanks to its consistent expansion, strong profitability, and a long track record of delivering impressive results. Currently, it’s trading below its intrinsic value, making it an ideal time to buy.
At the time of writing, goeasy is trading just over $173 a share. Meanwhile, the average target price from the eight analysts covering goeasy is just over $200.
This is a unique opportunity for investors. Although it’s not ultra-cheap, it’s the perfect kind of TSX stock to buy: undervalued, fast-growing, and of high quality.
For example, right now, goeasy trades at just 9 times forward earnings. However, its five-year average forward price-to-earnings (P/E) ratio is 10.5. And if goeasy was trading at a P/E ratio of 10.5 times today, the stock would be worth roughly $201.70, essentially in line with analyst estimates.
However, it’s not only that goeasy is undervalued. In addition to the discount, the stock is expected to continue to grow at an impressive rate. For example, its normalized earnings per share are expected by analysts to jump 24% this year and another 18% next year, reaching $25.61 by the end of 2026.
At that point, even if goeasy were to maintain just a 9 times forward P/E ratio, the stock would be worth $230.49. And if it trades at its historical average of 10.5 times forward earnings, goeasy could soar as high as $270 per share.
So, if you’re looking for a top TSX stock to buy while it trades below its intrinsic value, goeasy is unquestionably one of the best.
A high-quality healthcare stock
In addition to goeasy, another top TSX stock trading below its intrinsic value is WELL Health Technologies (TSX:WELL).
Like goeasy, WELL is a high-potential, high-quality stock that has demonstrated its ability to grow both by acquisition and organically.
However, WELL currently trades at just $4.80 per share, which is 11 times its forward earnings. That’s not only ultra-cheap for a high-potential growth stock like WELL, it’s also below its three-year average forward P/E ratio of 14.9 times.
Furthermore, the average analyst target price for WELL is $7.16, representing a premium of more than 45% to its current trading price. So if you’re looking for top TSX stocks to buy now, WELL is easily one of the best.
