When it comes to investing in equities, growth stocks have the potential to create massive wealth over the long term. For example, if you had invested $1,000 just after Shopify went public, the investment would have ballooned to over $40,000 in fewer than six years.
Growth companies have the ability to increase their revenue and earnings at a fast clip compared to the overall industry. This results in outsized gains for long-term investors. We’ll look at three growth stocks on the TSX that should be part of your portfolio for 2021.
Docebo
The first stock on the list is cloud-based, enterprise-facing, e-learning company Docebo (TSX:DCBO)(NASDAQ:DCBO). Shares of Docebo have gained 400% since it went public to currently trade at $80.
Its stellar performance has meant Docebo stock is now valued at a market cap of $2.61 billion, indicating a forward price-to-2021-sales multiple of 24.
Similar to most other growth stocks, Docebo is also unprofitable, though it’s expected to narrow its loss from US$0.49 per share in 2019 to US$0.06 per share in 2021. Analysts also expect the company to increase sales by 50.4% to US$62.33 million in 2020 and by 44.7% to US$90.22 million in 2021.
In its most recent quarter, Docebo’s annual recurring revenue soared by 55%, while its average contract value rose by 24.6% year over year. At the end of Q3, Docebo’s customer count was up 24% year over year at 2,025.
Nuvei
The fintech industry has been red hot in 2020, which meant shares of companies such as Nuvei (TSX:NVEI) have surged to record highs. Nuvei is a company that provides payment technology solutions to merchants all over the world. In Q3, Nuvei’s gross transaction volume surged 62.5% year over year to $11.5 billion, while adjusted EBITDA was up 59% at $41 million.
Nuvei has now expanded its support in the crypto space and will also benefit from its focus on international expansion in the upcoming decade. According to a Bank of Canada report published back in 2017, cash transactions fell to 33% in 2017 — up from 54% in 2009. The value of these transactions also fell from 23% to 15% in this period.
Another report from MarketsAndMarkets showed the global payment processing solutions sector is estimated to grow to $120 billion in 2025, up from $74 billion in 2020, indicating an annual growth rate of 10%.
Dye and Durham
Another recent IPO that has been on fire is Dye & Durham (TSX:DND), a company that provides cloud-based software and technology solutions for legal firms as well as financial and government organizations.
Its cloud-based platform automates public due diligence searches and aids enterprises in document preparation. Dye & Durham is valued at a market cap of $3 billion and is trading at a forward price-to-sales multiple of 23. Analysts tracking the stock expect sales to rise by 97% year over year to $129 million in fiscal 2021 and by 57.6% to $203.54 million in 2022.
Comparatively, its loss per share is estimated to improve from $0.26 in 2020 to earnings of $0.73 in 2022.
The Foolish takeaway
All three companies mentioned here have gained significant momentum since their respective IPOs. Their market-thumping performance makes these stocks vulnerable in a broader sell-off. However, a correction in stock prices should be viewed as a buying opportunity by investors, making them strong bets over the long term.
