Growth has taken a backseat to COVID-19 recovery plays over the last few months. While the growth-to-value rotation may be warranted, given clarity on the newfound on the vaccine timeline, I don’t think the top-tier Canadian growth stocks will be kept down for very long. As such, I’d encourage younger, growth-savvy investors like millennials to consider initiating a quarter position (buy a fourth of a full position now with the intention of buying more down the road) while the growth darlings are under pressure.
Will the growth-to-value rotation continue to be the theme through 2021?
I don’t think so. While many early stage growth companies that have benefited from the pandemic could see such pandemic tailwinds fade over the coming months, as the masses are inoculated, I think that the recent selling pressures are overblown when it comes to certain stocks that view the pandemic as more of a sustained growth accelerant than a mere pull-forward in demand.
The supply chain is a complicated beast that probably won’t be made any less complicated in the post-COVID world
When it comes to toilet paper, there’s an obvious pull-forward in demand that will follow a “hangover” period that sees lower demand as consumers go through their stockpiles. When it comes to top SaaS (software-as-a-service) companies like supply-chain management software developer Kinaxis (TSX:KXS), which is just starting to make a name for itself, I think incredible growth numbers can be sustained in a post-pandemic environment, as clients continue to spread the word about the true value of incorporating such cost-saving platforms.
For many firms, the value added from adopting a platform like Kinaxis can far outweigh the costs. The same could be said for the numerous SaaS firms with their sights set on a niche market. Unlike most other U.S.-traded SaaS firms, though, Kinaxis trades at a reasonable multiple following its latest decline (Kinaxis stock is currently down 17% from its high and 15% since the start of November).
At the time of writing, Kinaxis trades at 17.3 times sales, which is considerably lower than most other SaaS companies that have been hogging a majority of the limelight. On its own, Kinaxis looks expensive. But on a relative basis (relative to the industry average and the firm’s growth prospects), the stock looks way too undervalued as far as SaaS plays are concerned.
The COVID-19 pandemic may have wreaked havoc on the supply chains of companies. As things return to normal, I don’t think investors should expect supply/demand imbalances to suddenly return to normal. We could be in for the exhaustion of pent-up demand, and that could leave many supply chains at risk of being unprepared on the supply side. If anything, a post-pandemic spending boom bodes well for a name like Kinaxis.
Remote work isn’t going anywhere
Another tech darling and pandemic beneficiary that will keep on winning in a post-COVID world is Learning Management System (LMS) play Docebo (TSX:DCBO).
The COVID pandemic has forced many workforces to operate from home. Investments in work-from-home (WFH) infrastructure have surged. Many firms are discovering that it is possible to have employees work from anywhere without experiencing a significant productivity decline. With daily commutes taken out of the equation, many employees are putting in the extra hours, which may have a net positive effect for firms.
Once this pandemic ends, the WFH (or work-from-anywhere) trend isn’t going to go away. If anything, the pandemic has accelerated the secular shift, and remote working plays like Docebo are in a position to continue winning for years to come.
Some brilliant people, including Bill Gates, think that the remote work is here to stay and that it could leave a long-lasting dent in business travel demand. I’m inclined to agree and think that a remote work play like Docebo is a buy on its latest dip. At 26 times sales, Docebo stock is expensive. But I think it’s well worth the high price of admission and wouldn’t at all be surprised to witness further multiple expansion on the other side of this pandemic.
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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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends KINAXIS INC.