Key insights
- The article suggests Wajax, a Canadian industrial distributor, is undervalued due to a business transformation towards higher-margin, recurring revenue streams in Engineered Repair Services (ERS). While primarily focused on the Canadian market, the analysis of Wajax's shift away from cyclical hardware sales towards more stable service revenue could offer insights into similar US-based industrial distributors undergoing strategic shifts. The comparison to CAT dealers provides a valuation framework.
Wanted to share a name I think is genuinely mispriced because the market is anchoring to an outdated view of the business. Context
Wajax is a Canadian industrial distributor selling heavy equipment (Hitachi excavators, Tigercat forestry), industrial parts, and engineered repair services. The stock is down ~33% over 15 years and trades at ~12.6x earnings and 0.3x sales. Its closest peers, Finning and Toromont, both CAT dealers trade at ~17x and ~33x respectively.
On the surface, that discount looks deserved. Pre-2018, Wajax was a subscale equipment distributor competing against two entrenched CAT dealers. No differentiated aftermarket platform, bloated inventory, dividend cut in 2015, leading to a constant beat down of the stock. But Wajax is not the same company. It is no longer a losing distributor of Hitachi, but instead moving closer to an Engineering Service Business.
Wajax's Quiet Business Transformation
Between 2018 and 2023, Wajax deployed over C$200M in acquisitions to build an Engineered Repair Services (ERS) platform from scratch, with electromechanical repair (Groupe Delom), electric motor repair (NorthPoint), process control (Tundra), and hydraulics (Beta Fluid Power).
This service industry is not tied directly to Hitachi, but instead agnostic towards OEMs. It covers work like conveyor servicing, belt splicing and plant-level maintenance. These services seem sticky regardless of CapEx cycles, with firms still spending money on maintenance of existing equipment without purchasing new equipment. Thus revenue changes from lumpy hardware sales dependent on cyclical spending towards more definite, recurring revenue.
Industrial parts and ERS combined revenue doubled from C$446M in 2018 to C$898M in 2024, now ~41% of total revenue. Management has described ERS acquisitions as "EBITDA margin enhancing" and confirmed that higher ERS mix drove 100bps of gross margin improvement. Thus, the revenue, although seemingly flat (~2-3%), is actually becoming of much higher quality, with long term growth and much better margins.
Wajax's ERS Competitive Edge
Toromont and Finning similarly have strong aftermarket businesses, but it's one that comes with the CAT franchise. Thus their product support is inherently tied to CAT equipment. However, Wajax's ERS platform is built by the company itself, making it able to service any processing plant, regardless if the customer runs CAT, Hitachi, or anything else, opening the door to new sources of revenue besides it's equipment customers.
On top of this, in 2022 Wajax became Hitachi's exclusive dedicated mining equipment dealer in Canada. Previously, Hitachi was sold through Deere dealers who had no incentive to push it. Now when Hitachi wins any mining sale in Canada, only Wajax benefits, whereas CAT splits profits across two dealers.
Each equipment sale opens a decade of aftermarket revenue. Industry estimates put aftermarket revenue over a machine's life at 1-2x the original purchase price. Wajax's CEO confirmed in Q2 2025 that most ERS customers continued spending on maintenance and MRO even as capital projects were paused. ERS revenue grew across all regions throughout 2025. This is quite promising, and the door seems to work both ways in a case study on the Wajax page which suggested that a good ERS system led to customers sourcing machines from Wajax too. Making it an underappreciated competitive advantage.
What I Think the Market is Missing
I believe rerating is beginning as revenue quality is becoming increasingly hard to ignore. The market has begun to see this, with the National Bank improving Wajax to Outperform and the stock climbing much higher from its low in April 25. This is promising, but it does not necessarily mean the door to buy Wajax has closed. It still currently trades far behind Finning and Toromont and even partial rerating towards it's peer group would lead to meaningful improvement.
I believe the market still has some hesitation with a 15 year old value trap and has not fully priced in the business model transformation. Thus allowing us to capitalize on this before the business changes become too hard to ignore.
Risks
- Hitachi may not gain meaningful share vs. CAT's deeply entrenched ecosystem * Second hand exposure to trade risks and spending cycles may cause cyclical revenue issues, but the change to service business makes this not as bad as it would have been before * New CEO creates execution risk mid-transformation * Limited sell-side coverage means the re-rating could take longer than expected * The stock has been cheap for 15 years and institutional anchoring is a real risk
Conclusion I think Wajax is an incredibly promising business with a strong business transition. I think the market has begun to realize the change but the stock still has a long way to go. I hope with more sell-side attention, the company can reach its potential with a roughly 12-18 month window. Additionally, the company has appealing asymmetric risks at least in terms of revenue, with ERS revenue being notably stickier, allowing it to better weather cyclical threats.
For those interested, I wrote a much more in depth article covering some macro tailwinds that could benefit this ERS system as well: https://open.substack.com/pub/601capital/p/wajax-corp-the-service-business-hiding?r=7ucz4e&utm_campaign=post&utm_medium=web
What do you all think about Wajax? Would love to chat in the comments!
This is not investment advice. Do your own research.