Tech stocks delivered impressive returns in 2020. The structural shift toward e-commerce platforms amid the COVID-19 pandemic, working from anywhere, and distance learning provided a solid base for growth. While the easing of lockdown measures and vaccination is likely to normalize demand and could lead to a deceleration in growth, I believe a few TSX-listed tech companies could continue to deliver strong financial results and gain market share, thanks to the positive secular industry trends.
Here are four tech stocks that I believe could continue to outperform the benchmark index with their returns in 2021 and beyond.
Absolute Software
Absolute Software (TSX: ABST)(NASDAQ: ABST) stock is up about 232% in three years. Its stock has more than doubled in one year. The company’s stellar returns are backed by its resilient and high-growth business. Its annual recurring revenue (ARR), which is the indicator of its future recurring revenues, continues to grow at a healthy pace both on a sequential and year-over-year basis.
During the most recent quarter, Absolute Software’s total ARR jumped 17% year over year, reflecting strength in both Enterprise & Government and Education verticals. I believe the uptrend in Absolute Software stock is likely to sustain, as increased spending on cybersecurity is likely to drive its revenues and margins in the coming years. The company projects a 12-14% growth in its revenues in 2021.
Its ARR remains strong, while its adjusted EBITDA is growing at a breakneck pace. Further, expansion of its client base, solid momentum in international business, and high net customer retention rate provide significant growth opportunities. Moreover, a large addressable market, cross-selling of platform, robust product pipeline, debt-free balance sheet, and channel and geographic expansion augurs well for growth.
Shopify
Shopify (TSX: SHOP)(NYSE:SHOP) stock has made investors very rich. While Shopify has delivered stellar returns over the past several years, the uptrend in its stock is likely to sustain thanks to the favourable industry tailwinds.
Shopify continues to deliver strong financial results as the pace of shift towards digital commerce has accelerated. I believe the momentum in Shopify’s business is likely to sustain on the back of an increase in e-commerce spending.
Shopify remains well positioned to capitalize on the growing demand for multi-channel commerce platforms. Its multiple sales channels are expected to drive its merchant base and, in turn, its gross merchandise volumes. A large addressable market, geographic expansion, new products and services, and a strong balance sheet are likely to drive Shopify’s financial performance and, in turn, its stock.
Dye & Durham
Dye & Durham (TSX: DND) delivered exceptional returns since it listed on the TSX last year. I believe the uptrend in its stock could sustain in the coming years, thanks to its large customer base and accretive acquisitions.
Dye & Durham has over 25,000 customers, with none of them accounting for more than 25 of its total revenues. Its diversified customer base and long-term contracts with top clients positions it well to deliver stable revenues and adjusted EBITDA.
Dye & Durham completed 19 acquisitions since 2013. These acquisitions strengthen its customer base, expand its geographical reach and accelerate its sales and EBITDA growth rate. I believe the reopening of the economy is likely to drive demand for its products and services. Its robust M&A pipeline is likely to bolster its revenues and EBITDA growth rate and, in turn, drive its stock higher.
