Electric bus maker NFI Group Inc. could find itself the target of a takeover by another company or private equity firm after the big plunge its stock price, according to an analyst.

“NFI’s currently depressed share price increases the likelihood of an approach by private equity or a strategic buyer,” Cameron Doerksen, an analyst at National Bank, said in a note to clients on Thursday. 

NFI’s stock price has plunged nearly 80 per cent since its high in 2018.

The company has been struggling to ramp up manufacturing and management cut its production forecast twice over the past 12 months, but Doerksen said the company’s woes are not “structural.”

“NFI’s problems are largely due to factors outside of its control, like a global pandemic that significantly hurt the company’s customers, and the subsequent supply chain difficulties that have impacted all vehicle manufacturers,” he said.

While he noted there's no indication a third party is looking to buy NFI, there are several attractive selling points it has to offer including its strong hold on the North American and U.K. markets, alongside being a leader in the zero-emission bus segment. He also pointed to growing appetite for public transit funding and the green transition.

Should a strategic investor acquire NFI, it would gain access to its significant market share and stand to benefit from rising demand for new buses, he added. The company’s backlog grew to 8,908 firm orders and options worth $4.9 billion in the first quarter.

“A more patient private equity investor could be attracted by significant potential upside, especially if NFI is able to achieve its 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) target of $400-450 million,” Doerksen said.

He has a 12-month target price of $14.00 on NFI shares and a sector perform recommendation (the equivalent of a hold) on the stock. 

While he doesn’t see upside potential for the stock price right now, he also doesn’t believe there is a risk of institutional investors selling NFI’s stock. 

“We suspect that NFI’s existing institutional shareholders would likely not be keen to sell their stock at the current depressed share price, especially if the predominant investor view is that the current supply chain challenges will ultimately be resolved,” he said.

He issued a warning to short sellers who have taken a position against the company, which now accounts for 8.3 per cent of outstanding shares in May, compared to 2.2 per cent late last year.

“We believe the thesis for a short position is based on the prospect of NFI needing to issue additional equity to gain covenant relief (we do not expect additional equity) and that supply chain problems will be more persistent than is currently projected,” he said.

“In our view, NFI’s currently depressed share price increases the likelihood of an approach by private equity or a strategic buyer. As such, existing short positions in NFI face significant risk should an acquisition offer materialize.”