CargoJet is a better pick than Shopify right now, this investor says

Looking for a Canadian-made way to cash in on COVID-inspired growth in e-commerce? You could buy Shopify, of course, but consider this stat: the vast majority of e-commerce packages making their way to Canadian doorsteps go through one overnight transport company, and that would be Cargojet (Cargojet Stock Quote, Chart, News TSX:CJT).

Avenue Investment’s Bryden Teich takes the less flashy name.

“Cargojet is a name that we really like. We’ve owned it now for quite a while and it’s actually still our biggest position,” says Teich, speaking on BNN Bloomberg on Tuesday.

“[To the question], is Shopify a proxy for the Canadian version of Amazon, we like Cargojet. That’s our exposure to the trend for e-commerce growth.”

“Cargojet has had phenomenal numbers over the last couple of quarters and really the growth in online retail has exploded exponentially through this last period of time as more people are forced to become comfortable with buying things online,” Teich said.

“And Cargojet, they do over 90-95 per cent of all air traffic cargo traffic in Canada. So, from city to city overnight if you’re buying a package on Amazon there's a 95 per cent chance of it being delivered via a Cargojet plane the night before.”

“It's a great structural winner in this kind of environment,” Teich said.

Cargojet was doing just fine before the pandemic, with its share price up 46 per cent in 2019 on a new deal delivered last summer that would see Amazon owning a chunk of the company dependent on Amazon hitting certain milestones in its business with Cargojet.

The move solidified a relationship with Amazon and took away worries that the online retail giant might sign with another transport company for its Canadian business and consequently gave a lift to CJT’s share price.

But all that changed in 2020, of course, with Cargojet plummeting hard in February and March and seemingly getting initially lumped in with the devastation rained on the airline industry by COVID-19. At its worst, CJT lost almost half of its value before starting the long climb into the black for 2020.

Since then, it’s been all glory for the stock, which currently sits up 65 per cent for the year.

Cargojet’s quarterly numbers tell the tale, as well, where the work from home economy has boosted the company’s growth into high gear. For its most recent quarter, its Q2 delivered in early August, CJT saw its revenues climb by 65 per cent year-over-year to $196.1 million, a record high for the company, while adjusted EBITDA ballooned by 143 per cent to $91 million.

“Cargojet continues to show resilience and operating leverage as it handles a significant surge in volumes. At the same time, we are continuing to use increased cash flows to pay down debt and we continue to make investments to ensure that we can participate in the growth opportunities being presenting to us,” said president and CEO Ajay Virmani in a press release.

Teich said Cargojet’s growth likely isn’t a blip on the radar, either, as its future success will come from the still-growing online retail environment.

“We would be buyers of it at this level for longer-term investors and we still really like it in this in this kind of environment,” Teich argued. “There’s a potential that the benefit of Cargojet becomes more structural in nature and at that point I think people will be willing to pay a higher multiple to own the stock because it’s such a huge benefactor to the growth in e-commerce.”

“So, we still really like the name and we would be buyers of this recent pullback,” Teich said.