After declining 2.9% last month, the S&P/TSX Composite Index has rebounded 3% month-to-date, supported by favourable commodity prices, steady corporate earnings, and a resilient Canadian economy. However, persistent inflation, geopolitical tensions, and trade tensions continue to cloud the market outlook. Rather than being swayed by short-term volatility, long-term investors may benefit from focusing on high-quality businesses with solid fundamentals and the potential to deliver attractive returns over time.
One stock worth considering is Savaria (TSX: SIS), which rewards shareholders with capital gains and monthly dividend income. Let’s examine its business operations, recent financial performance, growth prospects, dividend yield, and valuation to assess whether the stock presents an attractive buying opportunity.
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Savaria’s business outlook and earnings
Savaria designs, manufactures, and distributes accessibility equipment and a broad range of pressure management products worldwide. Its global manufacturing and distribution network provides a strong geographic presence, enabling the company to serve diverse customer needs while reducing its dependence on any single market.
The company delivered solid second-quarter performance, reporting an 8.4% year-over-year revenue increase to $245.8 million. Organic growth of 6.6%, a 0.8% contribution from acquisitions, and a favourable 1% foreign exchange impact supported its revenue growth. Meanwhile, higher gross margins helped drive operating income up 34.1% to $35.8 million. Its operating margin expanded by 280 basis points year over year to 14.6%, reflecting improved operational efficiency and profitability.
Savaria also posted healthy bottom-line growth. Adjusted net income increased 20.7% year over year to $25.6 million, or $0.35 per share. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 10.7% to $51.8 million, while the adjusted EBITDA margin improved by 50 basis points to 21.1%. These results highlight the company’s ability to translate revenue growth into stronger earnings.
Alongside its improving financial performance, Savaria strengthened its balance sheet by reducing net debt to $172.8 million at the end of the second quarter, down from $191.5 million at the beginning of the year. Its net debt-to-EBITDA ratio also declined from 1.03 times to 0.87 times, indicating improved financial flexibility and a lower debt burden relative to earnings. The company also ended the quarter with $333.4 million in available liquidity, providing ample resources to pursue growth initiatives while maintaining balance sheet discipline.
Savaria’s growth prospects
Savaria is well-positioned to capitalize on the long-term demographic shift toward an aging population and the resulting increase in demand for accessibility solutions. Its diversified manufacturing footprint also provides operational flexibility to navigate geopolitical uncertainties and trade-related challenges. Meanwhile, ongoing product innovation and strategic acquisitions could strengthen the company’s capabilities, expand its market reach, and unlock additional growth opportunities.
Reflecting its confidence in these growth drivers, management has outlined ambitious long-term targets. Savaria expects revenue to reach $1.6 billion by 2030, implying an annualized growth rate of 11.8%. It also anticipates adjusted EBITDA per share to rise to $4.25, an annualized growth rate of 10.4%. These strong earnings and cash flow growth could support long-term share price appreciation and sustainable dividend payments.
Savaria currently pays a monthly dividend of $0.05 per share, for a forward yield of 2%. While the yield is modest, investors could also benefit from capital appreciation.
Investors’ takeaway
Savaria has delivered impressive returns over the past three years, generating a total shareholder return of approximately 158%, equivalent to an annualized return of 37.1%. Despite this strong performance, the stock remains reasonably valued, trading at forward sales and earnings multiples of 2.1 and 20, respectively. With solid fundamentals, favourable industry trends, and multiple growth opportunities, Savaria could still appreciate while continuing to provide monthly dividend income, making it an excellent long-term buy.
