Canadian investors should consider gaining exposure to beaten-down stocks that are poised for a turnaround. This strategy should allow investors to generate market-beating returns over time.
One such undervalued Canadian stock that trades at a cheap multiple in December 2025 is NFI Group (TSX:NFI). Valued at a market cap of $1.8 billion, NFI stock is down 75% from all-time highs and has underperformed the broader markets by a significant margin in recent years.
NFI Group is a Canadian bus manufacturer operating globally across North America, the UK, Europe, and the Asia Pacific. The company designs and produces transit buses, coaches, medium-duty shuttles, and cutaway buses through brands including New Flyer, Alexander Dennis, and ARBOC.
NFI manufactures both single and double-deck buses, heavy-duty transit vehicles, and motor coaches. It also provides electric vehicle charging infrastructure installation services and sells fiberglass-reinforced polymer components.
Through its aftermarket division operating under the NFI Parts brand, the company supplies replacement parts for its entire bus portfolio. Founded in 1895 and headquartered in Winnipeg, NFI additionally offers connected vehicle technology and diagnostic services.
Let’s see why I’m bullish on this TSX stock right now.
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Is this small-cap Canadian stock a good buy?
NFI Group reported mixed results in Q3, as operational improvements were offset by a battery recall that affected its electric bus fleet.
In Q3, the Canadian bus manufacturer posted adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $65 million, up 52% year over year, while free cash flow improved by $12.8 million. However, NFI booked a $229.9 million warranty provision related to defective batteries supplied by XALT Energy.
The recall affects around 700 buses and coaches equipped with XALT batteries that pose a potential short-circuit risk during charging. NFI has deployed software updates to limit charge speeds and battery capacity, keeping vehicles operational while replacement batteries are sourced from an alternate U.S. supplier.
The company expects the replacement campaign to run 18 to 24 months starting in early 2026. This work will be conducted at NFI service centres rather than manufacturing facilities to avoid production disruptions.
Management emphasized that the provision is a conservative estimate of total costs and a tentative agreement with XALT could reduce the financial impact. XALT recently announced plans to wind down U.S. battery operations, though NFI remains confident a satisfactory cost-sharing arrangement will be finalized by year’s end.
If we exclude the battery provision, NFI’s manufacturing gross margins would have reached 10.2%. Further, its gross profit per unit would have risen by 58% to $66,300.
The company’s improving unit economics reflect strong backlog conversion as higher-priced contracts flow through production. Notably, the average selling price of heavy-duty buses has risen by 64% since 2021.
Revenue visibility
NFI ended Q3 with a total backlog of 15,606 units valued at $13.2 billion. This provides investors with significant revenue visibility, given 2025 sales are forecast at $3.7 billion.
Total backlog now stands at 15,606 equivalent units valued at $13.2 billion, with average selling prices for heavy-duty transit buses up 64% since 2021.
NFI ended Q3 with $386 million in total liquidity, while its debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio improved to 4.3 times.
Management projects the fourth quarter will deliver the highest quarterly EBITDA in company history, with a midpoint estimate of $330 million.
NFI views tariffs as pass-through costs to customers and has expanded U.S. manufacturing capacity, including opening facilities in Las Vegas and launching an all-Canadian build line in Winnipeg to minimize cross-border exposure.
Is the TSX stock undervalued?
Analysts tracking the TSX stock forecast revenue to increase from $3.1 billion in 2024 to $4.7 billion in 2027. In this period, free cash flow is forecast to improve to $286 million, compared to an outflow of $17.8 million.
If NFI stock is priced at 10 times forward FCF, which is relatively cheap, it should return over 100% in the next 12 months. Given consensus price targets, the undervalued Canadian stock trades at a 36% discount in December 2025.
