1 Undervalued TSX Stock Down 50% to Buy and Hold

Once a TSX darling during the pandemic, Enghouse Systems (TSX:ENGH) is a Canadian technology stock that has turned into a falling knife. Down 50% from its early 2024 trading levels, the software conglomerate, known for its aggressive acquisitions-led growth strategy, has hit a significant rough patch. However, a recent new team design, accretive acquisitions, and a generous 7% dividend yield act as attractive attributes for an undervalued ENGH stock that could enhance total shareholder returns as management attempts to engineer a recovery in 2026.

Why is Enghouse Systems stock broken?

A significant portion of Enghouse Systems stock’s capital gains during the pandemic were supported by its video and remote work platform, Vidyo. As the pandemic subsided and the world returned to offices and in-person interaction, demand for “quarantine-working” solutions cratered and evolved. Investor interest in Enghouse stock died, and the market zoomed into the company’s sluggish organic growth profile.

Organic growth has been a challenge for Enghouse Systems as its legacy software sales met the insurmountable forces of cloud-based Software-as-a-Service (Saas) migration. The company had used its massive cash pile to buy growth by acquiring smaller tech businesses. However, with sluggish revenue growth and a slow-spending environment for enterprise software, concerns that the company could be a melting ice cube without a constant pipeline of deals arose – and lingered.

Management turned to aggressive dividend raises to entice its investor base, growing the payout at double-digit annual rates averaging 17.5% over the past three years.

Encouragingly, Enghouse Systems stock could have found a turning point.

Enghouse’s recovery thesis: The cash-rich contrarian play

Despite its share price collapse, Enghouse is far from a failing business. The business remains cash flow positive to sustain its acquisitions-led growth strategy. Its recent deals appear accretive to revenue and earnings, while a new product strategy could propel it into a new growth era.

Its annual revenue run-rate has fully recovered from a 2022 fall to $500 million. Its SaaS and maintenance services recovered in 2025. In fact, Enghouse Systems’ financial metrics going into 2026 are why it’s a strong candidate for a decade-long hold.

Enghouse’s fortress balance sheet is a rare attribute for a tech stock. The tech stock has zero external debt. At the end of the Fiscal Year 2025, it held approximately $269 million in cash resources, a liquid resource for acquisitions and share repurchases.

The business continued to generate positive operating cash flow during the past year to replenish the capital it spends on cash acquisitions. The business is replenishing the dry powder it needs to buy out distressed software businesses at bargain prices. Its acquisitions-led growth strategy, dividend growth strategy, and share repurchases remain well funded.

The company recently closed some accretive acquisitions. Targeting small-cap businesses offering mission critical solutions to niche markets with high barriers to entry, the company recently closed acquisitions of Sixbell Telco, Margento, and Aculab that are already proving accretive to revenue.

The new AI pivot

It launched its first AI suite in 2024. Enghouse Systems’ acquisition of Aculab in fiscal year 2025 added AI-driven technologies such as voice and face biometrics and high performance media processing to its interactive management group (IMG) segment.

The company found that most of its customers are struggling to implement AI effectively to improve their returns on investment. It set up a group within its research and development team to focus on AI professional services to customers. Instead of trying to build the next ChatGPT, relying on small language models (SLMs), Enghouse focuses on helping mid-market companies implement and monetize AI within their existing contact centers and transportation systems. This new revenue opportunity may be accretive to organic growth and also help with customer retention.

Is Enghouse Systems stock a buy on the dip?

Enghouse Systems stock is a contrarian buy-and-hold asset at current levels as shares trade at a cheap forward P/E of 10.2 times while promising a recovery that could generate 10% to 15% in annualized total returns over the next decade.

If ENGH sustains its juicy dividend, continues repurchasing its stock, and stabilizes its revenue and earnings organically while acquisitions add new momentum, a 7% dividend yield and a return to pre-pandemic average P/E multiples near 30 times could combine to offer strong total returns to contrarian investors over the next decade.

The post 1 Undervalued TSX Stock Down 50% to Buy and Hold appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enghouse Systems. The Motley Fool has a disclosure policy.