Add This 1 Growth Stock to Your Portfolio for Massive Returns

Find out which technology company can be a dark horse among Canadian growth stocks.

| More on:

Among Canadian growth stocks, you generally hear the same names being mentioned regularly: the constituents of DOCKS (Descartes Systems Group, Open Text, Constellation Software, Kinaxis, and Shopify) or the up-and-coming companies like Lightspeed POS. In a previous article, I’d mentioned Tecsys, which is a lesser-known company that could see tremendous growth in the coming years. Today, I will identify another growth stock that could give you huge returns.

First, I will explain how I got to this company. I used a stock screener and searched for companies in Canada. I then looked for companies that have reported sales growth increases of at least 10% over the past five years, a trailing 12-month return on investment of 10% or higher, and positive gross and operating margins. This screener produced a single company listed on the TSX: Tucows (TSX:TC)(NASDAQ:TCX).

Why Tucows is an interesting investment option

Tucows initially made its name within the internet community as a domain name registrar. In fact, in 1999, the company was one of the original 34 registrars identified by the Internet Corporation for Assigned Names and Numbers. Because of its strong footing in the industry over the past 20 years, Tucows has become the largest publicly traded domain registrar in the world. This segment of its business provides excellent recurring revenue for the company.

Seeing as the domain registration business is quite mature, the company needed to find additional sources of revenue to ensure further growth by the company. In 2012, Tucows released Ting Mobile as a mobile virtual network operator (MVNO). An MVNO is the practice of providing mobile services by obtaining access to existing networks rather than implementing proprietary infrastructure. To do this, Tucows has established deals with Sprint and T-Mobile. In 2014, the company announced its purchase of ISP Blue Ridge, which later led to the release of Ting Internet.

Tucows is also lead by a solid management team. Generally, I look for companies that are founder-led, but Elliot Noss may be the next best thing. He has been with the company for over 21 years and is the largest individual shareholder in the company with a 6.82% ownership stake. The remaining company insiders account for 2.58% ownership, which brings the total insider ownership stake to just under 9.5%. This is an adequate amount of insider ownership, as it identifies a company that is willing to be rewarded according to the performance of the company.

Risks

Of course, investing in this company does not come without its risks. The biggest issue was mentioned previously. The domain registration business has not been a large driver of growth for the company, and it is currently still the largest source of revenue for the company. That means it is relying heavily on the growth in Ting Mobile and Ting Internet.

It is also a possibility that the company’s access to the Sprint and T-Mobile mobile networks could be revoked in the future, leaving them with an entire business segment without any functionality. However, this is a very unlikely scenario, as access by Tucows onto those networks provides those companies with revenue.

Foolish takeaway

Tucows is a small-cap stock with big potential. There are definitely risks to consider, but the company is being led by a very competent management group, and it has been constantly innovating, as the internet landscape has changed over the years. This could be a great stock to watch or perhaps even start a small position in. Tucows should be a big player in the internet industry for a while.

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 Jed Lloren owns shares of Lightspeed POS Inc and Shopify. Tom Gardner owns shares of Shopify and Tucows. The Motley Fool owns shares of and recommends Constellation Software, Shopify, Shopify, Tecsys Inc., Tucows, and TUCOWS INC. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends KINAXIS INC, Open Text, OPEN TEXT CORP, and T-Mobile US.

More on Tech Stocks

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

money goes up and down in balance
Tech Stocks

1 “Magnificent 7” Stock I’d Buy Over Nvidia Right Now

Here's why Meta Platforms stock is a better choice for Canadian investors compared to Nvidia in November 2024.

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »