The Canadian equity markets are on a strong upward momentum this month, with the S&P/TSX Composite Index rising 11.4% amid the encouraging developments on the vaccine against COVID-19. Meanwhile, the economic outlook is still weak, with a high unemployment rate and timid real gross domestic product numbers. The disconnect between the economy and the stock market could lead to a correction in the stock market.
However, the following three TSX stocks could continue to rise and deliver multi-fold returns over the long run, given their impressive growth prospects.
Lightspeed POS
After bottoming out in March, Lightspeed POS’s (TSX: LSPD)(NYSE: LSPD) stock price has increased by over 550%. Amid the pandemic, many small- and medium-scale retailers and restaurants shifted towards omnichannel commerce platforms, driving the demand for the company’s products and services.
Lightspeed POS has increased its customer locations by 68% in the last four quarters to 80,000 by the end of the recently announced second quarter. Its GTV (gross transaction value) rose 56% year over year to $8.5 billion. Along with organic growth, the acquisition of Gastrofix and Kounta contributed to the company’s GTV growth.
The demand for the company’s services could sustain in the post-pandemic world, as a structural shift towards omnichannel solutions has created a multi-year growth opportunity. Lightspeed POS is also focusing on innovation and expanding its product suite, which could support its growth.
Meanwhile, Lightspeed POS is also looking at strategic acquisitions to expand its footprint and increase its customer base. The company’s strong liquidity position could support its acquisitions. So, given its growing addressable market and expanding market share, I expect the upward momentum in its stock price to continue.
Goodfood Market
The social-distancing and work-from-home restrictions amid the pandemic benefited the online grocery and meal kit delivery company, Goodfood Market (TSX: FOOD). Its top line grew 85% in its recently reported quarter. The addition of new customers, higher average order value due to its expanded product offerings, and increased order rates drove its sales. Meanwhile, the improvement in operating efficiency, automation, increased density in the delivery zones, and lower incentives and credits improved its EBIDTA margin.
Meanwhile, the shift in customer preferences towards online delivery and expansion in customer base has created a long-term growth prospect for Goodfood Markets. The company is also focusing on expanding its production capacity, investing in automation, increasing its product offerings, and expanding its product offerings across the country to increase its market share. Meanwhile, the improvement in efficiency and economies of scale could support its margin expansion.
This year, Goodfood Markets’s stock price has increased by 184%. However, given its large addressable market and increasing market share, the company can deliver multi-fold returns in the long run.
Cargojet
My third pick would be an air cargo company, Cargojet (TSX: CJT), which transports approximately 90% of Canada’s domestic air cargo volumes. Given its array of 27 aircraft and unique overnight delivery service, the company has acquired a significant share in the air cargo service. Further, the company earns 75% of its revenue through long-term contracts, delivering predictable earnings and cash flows.
Now, e-commerce sales form just 5% of Canada’s retail sales, indicating a significant expansion scope. So, the growth in e-commerce sales could drive the demand for Cargojet’s service. Further, the air cargo business is a capital-intensive business, which provides a natural barrier against new entrants.
Amid the recent pullback, Cargojet is currently trading at 12.4% lower from its 52-week low. Its valuation also looks attractive, with its forward price-to-earnings multiple trading at 31. Of the 12 analysts that follow Cargojet, eight have given a “buy” rating, while the remaining four have given a “hold” rating.
