Canadian growth stocks are attractive investments when you can get massive returns on your capital parked in the stock. Unfortunately, it comes with the risk of significant losses when things do not go your way. One such TSX growth stock is ATS Corp. (TSX: ATS).
As of this writing, ATS stock trades for $27.21 per share. ATS stock is down by 29% year-to-date, and a massive 45% from its 52-week high. Several factors could be attributed to this steep decline, including disappointing earnings and weaker revenue. While these problems are a big issue, there might be an argument to invest in the stock instead of selling it off.
The selloff comes at a time when the underlying business is actively cutting down on costs to improve margins. To kick things off and move toward a better financial standing, ATS must first eliminate millions in annual expenses. Meanwhile, the core operations are solid, its services segment continues growing, and its energy revenue is strong.
Today, I will discuss why ATS stock might be an excellent long-term pick despite the significant and worrisome decline.
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ATS and the selloff
ATS is a $2.7 billion market-cap company that plans, designs, builds, commissions, and services automated manufacturing and assembly systems. Its automation solutions serves clients across several sectors of the economy, from life sciences to food and beverage, and industrial and consumer markets, while its biggest client base is in the energy sector.
If you take a look at the June-ending first quarter for fiscal 2027, you might be able to see why investors panicked and started selling off ATS shares. The company’s year-over-year revenue in Q1 2027 dropped by 5.8%, likely due to a lower backlog for orders entering the quarter and weaker organic revenue. The period also saw its adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) fall by 8.5%, resulting in a 14.6% drop in its adjusted earnings.
To make matters worse, the quarter also saw its order bookings drop by 5.3% from the same period last year, while its order backlog fell by 8.7%.
Why buy the dip?
Everything I’ve said so far suggests that there might be no reason to invest in the stock. However, these numbers do not necessarily outweigh the appeal of investing in ATS stock, especially at such discounted levels. After a broad review of its operations, the company launched an 18-month program to fix its costs.
The first phase will see it target Europe, where ATS plans to consolidate some of its facilities and transfer some of its capabilities to other ATS locations that might benefit clients far more. The company expects to save around $20 million, accounting for roughly 30% of the savings it seeks to target through the program. The complete plan could deliver around half the margin expansion the company needs to reach its long-term targets for adjusted earnings from operations.
Foolish takeaway
Besides its cost-cutting measures, ATS is targeting long-term opportunities in areas like warehouse packaging automation, small modular reactors, nuclear refurbishments, data centres, and more. It is also increasing revenue and capital efficiency throughout its portfolio.
Combined with its fundamentals, I believe that ATS stock is going through a correction that will enable the stock to achieve significant long-term growth. The current price could be a great entry point for investors who see the immense growth potential the stock has.
