I have an aversion to overpaying for stocks. It is possible that the long-awaited moment that the bears have been waiting for might be around the corner. Technology stocks, forbidden territory at the moment for bearish, contrarian investors, are finally moving downwards. Personally, I have had a long shopping list to check off if stocks get to the point where it is worthwhile adding to my positions.
Most of the companies I have looked at are still expensive at the moment. The companies themselves are in an excellent position for continued growth, even if the stock prices put them out of reach at the moment. A large pullback in stock prices would certainly make them more attractive from a value investor’s point of view.
I certainly missed this one on the way up. One of the problems I have found with having a contrarian, value-oriented mindset is that you have a tendency to miss out on these growth opportunities. Shopify has had a fantastic run since its initial public offering a few years ago. Even with the stock pulling back in recent weeks, it has still provided investors with excellent returns.
Even with all of the growth the company has experienced, it still seems to have a significant amount ahead of it. Revenues for this company grew 62% last quarter over the previous year. Subscriptions Solutions revenue grew 55%. This is one of the most important factors, since most of the revenue from this source is recurring, which should provide a stable base for the company financials.
This company is probably one of my favourite Canadian tech stocks, although I have yet to pull the trigger on a purchase. Kinaxis sells and operates supply-chain management software for a number of business sectors such as aerospace, life sciences, and consumer products. These clients, many of which are solid blue-chip companies, provide Kinaxis with steady, recurring revenues. The company is also incredibly diversified by geography, with its revenues coming from a number of companies around the world.
The company has excellent financial results. Over the past several years Kinaxis has had a 24% compound annual growth rate (CAGR) of its revenue and has grown its EBITDA at a CAGR of 36%. This company is growing incredibly and still has free cash flow and earnings.
Keep these stocks in mind
On top of their incredible growth, these companies have another great attribute. Both Kinaxis and Shopify have incredibly clean balance sheets, with no debt and tonnes of cash. For me, in this day and age when companies have levered up their balance sheets to a huge degree, a debt-free balance sheet is of the utmost importance. If bad times come around, after all, it is often these strong companies that not only survive but thrive. So, while I would not rush out to buy any of these today, these two top Canadian tech performers are at the top of my list if the entire market takes a nosedive.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Kris Knutson has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and SHOPIFY INC. Kinaxis and Shopify are recommendations of Stock Advisor Canada.