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2 Tech Stocks That Could Surpass Shopify (TSX:SHOP)

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Shopify leapfrogged Royal Bank of Canada as the TSX’s most valuable publicly traded company during the COVID year. On August 17, 2020, the e-commerce platform’s weight in the index increased to 6.13% from 2.2% in early January.

The $225.43 billion tech superstar’s rise from 2015 is phenomenal. It also led the sector’s runaway win in 2020. However, 2021 hasn’t been as hot for the tech sector, with its 16.63% year-to-date gain (sixth place) compared to the energy sector’s +55.88% advance.

Nonetheless, watch out for Kinaxis (TSX:KXS) and Telus International (TSX:TIXT)(NYSE:TIXT). The two tech stocks could see hyper growth this year. Also, a well-balanced portfolio should have exposure to Canada’s booming information technology sector.

Long-term, contracted revenue

Kinaxis’s breakout year was 2019, when it rewarded investors with a 52% total return. The return zoomed to a bigger 81% in 2020, notwithstanding the global pandemic. Like Shopify (ranked number one), $4.23 billion Kinaxis (26th) was among the TSX’s 30 top-performing stocks for the year.

Today, you can purchase the tech stock at a discount (-13.77% year to date), and market analysts recommend a strong buy rating. They forecast the current share price of $155.50 to climb by as much as 45% to $226.22. Rapid Response, a cloud-based subscription software for supply chain operations, is the growth driver.

In Q1 2021 (quarter ended March 31, 2021), Kinaxis reported a US$1.5 million net loss. Management, however, estimates its annual Software-as-a-Service (Saas) revenue will grow 23-25% in the mid-term once typical business and market conditions returns.

Moreover, long-term contracts provide visibility into future contracted revenue. The total backlog from 2021 to 2023 and beyond is US$384 million. Among its high-profile customers are Ford, Proctor & Gamble, and Lenovo. Kinaxis combines human intelligence with AI and concurrent planning to help companies counter daily volatility and take control of their digital supply chain.

Meaningful growth trajectory

The IPO of Telus International on February 3, 2021, was the fifth-largest in TSX’s history and the largest tech IPO by far. While the stock hasn’t soared yet, market analysts are bullish and recommend a buy rating. The current share price of $38.86 is relatively cheap versus the growth potential.

The TSX listing marks a new chapter in the world-leading communications technology company’s journey. This $10.31 billion company is a wholly owned subsidiary of Canada’s second-largest telecommunications company. According to Darren Entwistle, president and CEO of TELUS, TIXT has been a pillar within the group’s dynamic growth strategy.

Despite the lower net income in Q1 2021 (quarter ended March 31, 2021), TIXT’s revenue grew by 57% year over year. Notably, organic growth was 20% due to the continued strong momentum in Tech and Games and good growth in Communications & Media and eCommerce & Fintech.

Jeff Puritt, TIXT president and CEO, said, “We are uniquely positioned to harness our end-to-end digital capabilities and long-standing differentiated caring culture to drive further benefits from the digital transformation tailwinds.”

Management expects to end 2021 with revenue of between $2.15 billion and $2.19 billion. TIXT’s primary focus is to partner with substantial, sustainable business customers instead of seeking short-term, pandemic-driven opportunities. The strategy should translate to a meaningful growth trajectory.

Take positions now

The TSX’s technology sector is a top attraction to both local and foreign investors. This year isn’t over, so you’d better take positions in Kinaxis and Telus International before their share prices soar through the roof.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends KINAXIS INC and TELUS CORPORATION and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify.

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