Why Cargojet Inc. (TSE:CJT) Could Be Worth Watching

Cargojet Inc. (TSE:CJT), is not the largest company out there, but it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$138 at one point, and dropping to the lows of CA$112. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Cargojet's current trading price of CA$112 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Cargojet’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Cargojet

What Is Cargojet Worth?

Great news for investors – Cargojet is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Cargojet’s ratio of 6.62x is below its peer average of 12.49x, which indicates the stock is trading at a lower price compared to the Logistics industry. What’s more interesting is that, Cargojet’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can We Expect Decent Returns From Cargojet?

Valuation is only one aspect of forming your investment views on Cargojet. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. A way to assess stock quality is by looking how much it returns to you as the investor compared to how much you’re invested. Cargojet is expected to return 13% of your investment in the next couple of years if you buy the stock today. This is a relatively good return on your investment which builds up the case for owning the stock.

What This Means For You

Are you a shareholder? Since CJT is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on CJT for a while, now might be the time to enter the stock. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CJT. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

So while earnings quality is important, it's equally important to consider the risks facing Cargojet at this point in time. At Simply Wall St, we found 1 warning sign for Cargojet and we think they deserve your attention.

If you are no longer interested in Cargojet, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.