Why This Canadian Stock Could Be the Best Kept Secret on Bay Street

Down more than 80% from all-time highs, Roots is a beaten-down TSX stock that offers significant upside potential to shareholders.

Key Points
  • Despite being 84% below all-time highs, Roots (TSX:ROOT) is showing signs of a turnaround, with solid Q2 results driven by 17.8% growth in direct-to-consumer sales and innovative product launches such as the Roam collection.
  • Roots is capitalizing on its multipronged omnichannel strategy, strategic store improvements, and high-profile partnerships, which are enhancing brand engagement and driving sales growth across key categories, including lifestyle and active wear.
  • Analysts project sales growth and a significant increase in adjusted earnings by 2027, with the stock poised to gain 50% over the next 18 months, positioning it as an undervalued investment opportunity on the TSX, trading at a 22% discount as of October 2025.

While the broader TSX Index is trading near all-time highs, several individual stocks are down from record levels. Valued at a market cap of $130 million, Roots Corp. (TSX: ROOT) is one such TSX stock down 84% from all-time highs, making it an attractive buy for value investors right now.

Roots designs, markets, and sells apparel, leather goods, footwear, and accessories under the Roots brand in Canada and internationally. The company’s Direct-to-Consumer segment sells products through its corporate retail stores and e-commerce platform. The Partners and Other segment engages in the wholesale of Roots-branded products to international operating partners, licensees, and wholesale customers.

Roots stock has grossly underperformed the broader markets in recent years as its revenue has fallen from $326 million in fiscal 2018 (ended in January) to $263 million in fiscal 2025. In this period, its net income has narrowed from $29 million to less than $10 million.

Let’s see why I’m bullish on the small-cap TSX stock right now.

Hiker with backpack hiking on the top of a mountain

Source: Getty Images

Is this Canadian stock a good buy?

Roots delivered solid second-quarter results with sales climbing 6.3% year over year to $50.8 million, driven by direct-to-consumer comparable sales growth of 17.8%. It was the highest comparable sales growth since the iconic Canadian retailer went public in 2017, reflecting four consecutive quarters of strong momentum across sales, gross margins, and profitability.

Roots’ multipronged omnichannel strategy is paying dividends, as the lifestyle, activewear, and sweats categories all grew during the quarter.

Roots launched its Roam collection in late July, representing one of its most significant product innovations. The collection incorporates proprietary breathing technology with moisture-wicking, odour-resistant, and water-repellent properties, while maintaining the signature Roots softness customers expect.

High-profile brand collaborations amplified engagement during the summer period. The Molson Canadian partnership featured the first-ever insulated can holder crafted from Salt & Pepper fleece, timed around Canada Day. The Canada Dry collaboration included experiential pop-ups in Toronto, which combined product storytelling with sampling. These partnerships reinforced Roots’ heritage positioning and extended reach during authentic Canadian cultural moments.

Store fleet improvements boosted performance in fiscal Q2. Roots opened a new Vancouver flagship in early July, featuring preserved moss walls, custom light installations, and large-format digital screens.

The updated location has already driven notable sales increases in the market. Roots operates with five fewer stores than last year, prioritizing capital allocation toward key locations and strategic consolidations.

Gross margins expanded 430 basis points year over year to 60.7%, driven by an improved sourcing strategy and disciplined markdown management. It has invested in AI-driven allocation and replenishment software to build a more agile organization. The direct-to-consumer gross margin reached 63.2 percent, up 150 basis points from the prior year.

Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) losses declined 47.9% excluding DSU (deferred stock unit) revaluation impacts. Net debt decreased 6.5% to $38.1 million, with net leverage at approximately 1.6 times trailing 12-month adjusted EBITDA.

Management indicated the first five weeks of the third quarter, including back-to-school, showed positive trends, though specific guidance was limited, given that September and October represent significant sales months ahead.

Is the TSX stock undervalued?

Analysts tracking ROOT stock forecast sales to increase to $277 million in fiscal 2027. Comparatively, adjusted earnings are forecast to expand from $0.15 per share in 2025 to $0.33 per share in 2027.

If the TSX stock is priced at 15 times forward earnings, which is reasonable, it should gain 50% over the next 18 months. Given consensus price targets, ROOT stock trades at a 22% discount in October 2025.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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