The small cap Canadian stocks we have discovered all have PEG ratios below 0.75, suggesting these names may be trading at attractive valuations
SmallCapPower | June 7, 2021: The price/earnings to growth ratio, or PEG ratio, is a stock valuation measure that investors and analysts can use to get a broad assessment of a company’s performance and evaluate investment risk. The PEG ratio builds upon the P/E ratio by factoring growth into the equation. Factoring in future growth adds an important element to stock valuation since equity investments represent a financial interest in a company’s future earnings. To calculate a stock’s PEG ratio, you must first figure out its P/E ratio. The P/E ratio is calculated by dividing the per-share market value by its per-share earnings. Then you take the stocks P/E ratio and divide it by the estimated earnings growth over the next five years (PEG = PE / EGR). In theory, a PEG ratio value of 1 represents a perfect correlation between the company’s market value and its projected earnings growth. PEG ratios higher than 1 are generally considered unfavourable, suggesting a stock is overvalued. Conversely, ratios lower than 1 are considered better, indicating a stock is undervalued. Today, we have found four TSX-listed Canadian stocks with PEG ratios below 0.75, suggesting that they are undervalued.
*Share price and other metrics as of June 4, 2021
Aritzia Inc. (TSX:ATZ) – $30.09
Fashion and Apparel
Aritzia engages in the design and retail of accessories and women’s apparel with Millennial appeal. The Company sells its products under the Aritzia banner, as well as other banners such as TNA, Babaton, and Wilfred. Aritzia has 101 locations in select cities across North America, including Vancouver, Toronto, Montreal, New York, Los Angeles, San Francisco and Chicago, as well as an eCommerce portal through atrizia.com. On May 11, 2021, Aritzia reported Q4 2021 revenues of $267.5M boosted by an 81.1% increase in eCommerce sales while 39 of the company’s boutiques closed due to COVID shopping restrictions. For 2021, the company expects net revenue to increase by 30% to 35%, led by continued eCommerce growth as well as store re-openings.
- Market Cap: $3,335.5M
- YTD-Return: +16.7%
- 1-Year Share Price Return: +42.9%
- 30-Day Average Trading Volume: 287,970
- NTM PEG Ratio: 0.61
Bird Construction Inc. (TSX:BDT) – $9.66
Bird is a leading Canadian construction company operating from coast-to-coast and servicing all of Canada’s major markets. Bird provides a comprehensive range of construction services from new construction for industrial, commercial, and institutional markets; to industrial maintenance, repair and operations services, heavy civil construction, and contract surface mining; as well as vertical infrastructure including, electrical, mechanical, and specialty trades. For over 100 years, Bird has been a people-focused company with an unwavering commitment to safety and a high level of service that provides long-term value for all stakeholders. Bird recently announced Q4 F2020 revenues of $444.6M, representing a 38.2% increase over the prior year’s quarter.
- Market Cap: $512.4M
- YTD-Return: +20.8%
- 1-Year Share Price Return: +50.2%
- 30-Day Average Trading Volume: 146,840
- NTM PEG Ratio: 0.63
Sleep Country Canada Holdings Inc. (TSX:ZZZ) – $29.52
Home Furnishing Retail
Sleep Country is one of the largest mattress retailers in Canada, operating 267 stores and 16 distribution centres across the nation. The Company operates under three retail banners: Dormez-vous, the largest retailer of mattresses in Quebec; Sleep Country Canada, the largest mattress retailer in the rest of Canada; and Endy, Canada’s online mattress brand. On June 4, 2021, Dormez-vous announced the opening location in the dynamic municipality of Blainville, QC, the second most populated city in the Laurentians. Additionally, Sleep Country Canada announced a new partnership with Best Buy, in which Sleep Country will begin selling mattress through Best Buy on the Best Buy Marketplace online platform.
- Market Cap: $1,086.9M
- YTD-Return: +11.5%
- 1-Year Share Price Return: +79.3%
- 30-Day Average Trading Volume: 125,520
- NTM PEG Ratio: 0.69
The North West Company Inc. (TSX:NWC) – $35.84
Consumer Staples – Grocery
North West Company is a retailer of food and everyday products and services to rural communities and urban neighbourhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 250 stores under the trading names Northern, NorthMart, Giant Tiger, Alaska Commercial Company, Cost-U-Less and RiteWay Food Markets and has annualized sales of about $2.4B. The North West Company, one of Canada’s oldest corporations, was founded in 1668 and is headquartered in Winnipeg, Canada.
- Market Cap: $1,739.9M
- YTD-Return: +10.5%
- 1-Year Share Price Return: +35.2%
- 30-Day Average Trading Volume: 97,580
- NTM PEG Ratio: 0.74
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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