Why I think this ASX small-cap stock is a bargain at $4.26

The ASX small-cap stock Kelsian Group Ltd (ASX: KLS) has the potential to deliver very pleasing returns to investors, and I think it's a solid buy for the long-term.

The fact that its share price has slipped 18% since 7 October 2025 makes it even more appealing buy, in my opinion.

Kelsian describes itself as a leading global operator of bus, motorcoach and marine services, which has been contracted by governments and private clients to deliver safe, reliable and sustainable passenger transport solutions.

The business has operations across Australia, the UK, Singapore, the USA and the Channel Islands. The ASX small-cap stock operates one of Australia's largest public bus operators, the second largest motorcoach business in the USA and bus franchising in the UK and Singapore. It also has significant marine operations, providing ferry services for commuters, tourism and regional communities.

Overall, the company operates more than 5,800 buses, 124 vessels and 24 light rail vehicles, enabling 383 million customer journeys over the past year.

Let me outline some of the positives about the ASX small-cap stock.

Low valuation

At a time when many of the most appealing investments globally are trading at expensive prices, Kelsian looks like it's trading on a cheap price/earnings (P/E) ratio.

According to the forecast on CMC Markets, the business is expected to make earnings per share (EPS) of 36.4 cents in FY26. That means it's currently valued at under 12x FY26's estimated earnings.

That P/E ratio looks cheap considering the business is projected to grow its EPS by another 10% in FY27, which I believe looks very promising.

Good core growth

Over the last year or so, the ASX small-cap stock has focused on addressing underperforming assets, divesting non-core assets (such as tourism assets), ensuring its debt levels are appropriate and improving communication about capital allocation.

The company says that it has strong market positions with a pipeline of opportunities that "will drive organic growth" across its markets. Kelsian said that its focus remains on capitalising on those opportunities.

It highlighted that in the first quarter of FY26 it won its first bus public transport contract in Queensland, the Ipswich and Logan bus improvement package.

Dividend income

The final thing I'll highlight is that the business is rewarding investors with a solid level of passive income each year. It's pleasing to be rewarded as a shareholder just for owning shares over time. Hopefully, the company can deliver capital growth too, resulting in solid overall total shareholder returns.

The ASX small-cap stock is expected to pay a grossed-up dividend yield of 6.2% in FY26 and 6.9% in FY27, including franking credits, according to the projection on CMC Markets.

The post Why I think this ASX small-cap stock is a bargain at $4.26 appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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