Gildan Activewear (TSX:GIL): An Energetic Asset at a Discounted Price

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Fashion and clothing have a unique overlap. Clothing is a necessity. Even though it’s not as evergreen a business/product segment as food and medicine, it’s not too far either. But it’s also a spectrum. On one end, it’s a necessity, but at the other end, where brands and fashion are, it starts pushing into the discretionary spending.

Gildan Activewear (TSX:GIL)(NYSE:GIL) is closer to that spectrum’s lower, necessity end. It’s primarily a B2-B company, though it’s growing its B2C front as well. And there are several reasons why Gildan Activewear is a company worth investing in.

The company

Gildan Activewear has been around since 1984 (though its roots go back to 1946). It started with a knitting mill in Montreal, which is still Gildan’s home. The idea was to supply fabric to a major children’s wear business. By 1992, it had established a presence in Canada and the U.S. and opened its first international plant in 1997. It became the top 100% cotton t-shirt supplier in the U.S. by 2001.

Its production facilities are mainly in Honduras, Bangladesh, Dominican Republic, and Nicaragua. Its products are sold in 60 countries, and it’s one of the global leaders in the imprintable market.

The distinct competitive advantages as well as the direction the company has taken towards responsible sourcing and production, make it a compelling ESG investment as well. Its financials have steadily grown over the last 15 years, making its dividends and capital-appreciation potential financially sustainable.

The stock

The company joined the TSX in 1998, and since its inception, it has grown roughly 14,900%. The ideal time to invest in this company would have been in 1998, when it was an up-and-coming penny stock, but that doesn’t mean it doesn’t offer any value right now.

The stock price has gone up 214% in the last 10 years, which indicates that the company could triple your money in a decade, but the growth hasn’t been steady or consistent. It has seen three individual growth cycles in the last decade.

The first one pushed the value of the company up roughly 218%. The second one peaked under 60%. The last one (post-pandemic) was the most potent, growing over 260% in less than two years (at its best). However, the stock is currently experiencing a slump. It has already dropped 19.7% since its last peak, and it may fall even further, given the trajectory.

It’s already quite attractively valued, and the yield is currently at 1.96%. The stock is already ripe for buying, but a much better time to buy might come as the stock slides down more. You may be able to lock in a yield as high as 2.5% if it falls enough. Buying and holding it long term might allow you to double your capital in under a decade.

Foolish takeaway

While buying the dip is almost always preferred, it’s even more critical when it comes to cyclical stocks. Linear growth stocks that offer predictable growth might provide you with decent returns (based on growth pace and how long you hold them), even if you buy them near or at the peak. But to get the best out of cyclical stocks, you need to buy the dip or as close to the depth as possible.

The post Gildan Activewear (TSX:GIL): An Energetic Asset at a Discounted Price appeared first on The Motley Fool Canada.

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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends GILDAN ACTIVEWEAR INC.

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