The 2020 market crash was an amazing time to buy growth stocks. Investors who foresaw this and added powerful growth companies when they were trading at rock-bottom prices made a killing before the year was over. But the recovery-driven growth of several stocks, riding the investor sentiment, grew way too much in too little time.
The momentum eventually ran out, and the stocks are now normalizing. Many of them are still far from “falling” to an adequate valuation, and it’s highly unlikely that they will become undervalued any time soon. But they have cooled off enough that you might consider adding them to your portfolio before they resume their usual growth journey.
A cargo company
It would be an understatement to say that Cargojet is as powerful a growth stock as Air Canada was in its glory days, because Cargojet’s growth has been significantly more consistent and aggressive. It has a 10-year CAGR of 39.2%, which is capable of growing your capital by over six times in just five years.
Cargojet was one of the stocks that rode the recovery wave too hard and outpaced even its own impressive historical growth. But unlike many others, the stock started to cool off in late 2020. Others grew till 2021 before slowing down. The price has fallen almost 28% from its Nov. 2020 peak.
This hasn’t made the stock under or even fairly valued. It’s still aggressively overpriced, but it might have fallen enough that it’s now on track with its usual growth pace. This means if the stock picks up where it left off before the crash and keeps growing at its usual pace, it might easily be able to double your investment in less than two or three years.
A tech company
Lightspeed stock has fallen about 20% from its recent February 2020 peak. It’s difficult to say whether the value has normalized, because there is not enough history to go on. Like Shopify, Lightspeed has the potential to beat investor expectations and grow way beyond what its valuation might suggest. It’s also in the same sphere, albeit catering to a relatively smaller clientele.
Its growth has been impressive, nonetheless, and if the stock has fallen as much as it’s going to, buying now might be wise before the stock starts growing at its usual pace. Because then it would only grow more expensive over time. The financials of the company are strong and growing at a comparable pace.
When it comes to growth stock, you have to be a bit more flexible with valuation. And when you are looking to harness aggressive growth that stocks like Lightspeed and Cargojet offer, it might be prudent to buy whenever the stocks are on a discount. Because if you wait for them to become fairly valued or undervalued, you might be waiting for a long time.
Speaking of growth stocks that you should buy before they go to the moon...
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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 Adam Othman owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends CARGOJET INC., Shopify, and Shopify. The Motley Fool owns shares of Lightspeed POS Inc.