The Canadian stock market appears to be doing really well these days. As of this writing, the Canadian benchmark index, the S&P/TSX Composite Index, is up by around 25% from its 52-week low. Despite the index’s movement indicating a bull market, several factors continue to make many investors fearful of putting their money to work in the market.
Inflation is slowly creeping back, the tariff situation is up in the air again, and various other geopolitical pressures are forcing many investors to the sidelines. A famous investor’s philosophy is to sell while others are buying and to buy when others are selling. It is true that some of the best opportunities for stock market investors come around when others are afraid to invest.
If you are willing to go the contrarian route and want to consider investing in an under-appreciated TSX blue-chip stock, you might want to take another look at Cargojet Inc. (TSX:CJT).
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Cargojet stock
When I think of under-appreciated TSX stocks, Cargojet is a big name that comes to mind. Shares of this leading air cargo company trade for $103.23 per share at writing, down by 28.8% from 52-week highs. The decline in its share price over the year seems alarming, and if you look at its fundamentals, the downturn might be surprising.
Investors with a long-term investment strategy might consider the pullback in share price as a good thing. After all, it presents a compelling entry point for investors who would otherwise think it is too expensive. It has a good track record and excellent financial performance.
What is happening?
The $1.6 billion market-cap company operates a domestic air cargo co-load network between six major Canadian cities. It also has significant international operations. Despite a standout performance in the first quarter for fiscal 2025, it is down considerably.
The quarter saw its year-over-year revenue increase by 8.1% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to give it a 32.3% margin. Its net earnings increased by over 47% and basic earnings per share increased by 58.2%. Considering how tough the global cargo market is, these are pretty impressive numbers by the Canadian air cargo operator.
All the positives aside, Cargojet did report $45.9 million negative free cash flow. Even then, the company is buying back shares. The quarter saw it buy back almost 273,000 shares, and the company continues to pay its shareholders their dividends.
Considering these figures, the pullback might not make sense. However, it has considerable debt of over $840 million, and the volatility in global trade is taking a toll on investor sentiment. Even with the risks involved, Cargojet is the only Canadian company with a national overnight air cargo network. As market demands change, the company can reposition itself to benefit from changing trade patterns.
Foolish takeaway
Despite strong fundamentals, Cargojet stock faces challenges due to factors out of its control. If the situation changes favourably, its investors might be in for capturing significant upside through capital gains. However, share prices can just as easily decline if macroeconomic factors become headwinds for the air cargo company. If you have no issues taking a contrarian position, it is arguable that the risk-to-reward ratio is in your favour. However, you must consider that there are significant risks involved if you decide to invest in its shares.
