Young Canadians: 1 High-Growth Stock That’s Probably Worth the Risk

Goodfood Market (TSX:FOOD) is one hard-hit Canadian stock that looks way too cheap, even given the headwinds up ahead.

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Young Canadian investors should use at least a portion of their funds to pursue high-growth stocks that could provide one with scoring a major multi-bagger over the long haul. It’s good to take smart, calculated risks on high-growth companies with sizeable TAMs (total addressable markets), competent managers, and wonderful products.

Even if the valuation is a tad frothy, many companies are capable of growing into their nosebleed-level multiples. Undoubtedly, it can be tough to value hyper-growth companies. While it may be tempting to ignore the valuation process, I’d argue that it’s still worthwhile, even if profits lie many years into the future.

With rates on the descent again, tech and growth stocks have bounced back in a big way. Ultimately, rates are dictating the trajectory of high-growth Canadian stocks over the near term. However, over the longer term, the fundamentals will prevail.

Growth investing through the lens of a value investor

It’s good to be a value investor. But as Warren Buffett once put it, all investing is value investing in that you’re trying to get more value for what you pay upfront. Valuation is more than just comparing price-to-earnings (P/E) or price-to-sales (P/S) ratios; it’s about conducting an independent analysis of future cash flows discounted at the current rate. When analyzing a company’s distant future, there’s greater source for error, and that makes high-growth companies less appealing to the risk averse.

If you’re younger and have the time horizon to witness a company evolve from its high-growth stage into a mature company, though, you should take a risk for a shot at the greater reward.

In this piece, we’ll look at Goodfood Market (TSX:FOOD), one high-growth Canadian stock that’s fresh off a vicious crash of around 50%. Thanks to retreating rates, the name has shown signs of bottoming, making it an ideal picks on the way up for investors looking to capitalize on the next leg higher.

But be warned: the stock is likely to be a major mover based on the trajectory of rates. I have no idea where rates will be next week, month, or year. Some folks think it will rise again, hurting high-growth stocks with extended valuations. Others think deflationary forces will apply downward pressure on rates, boding well for higher-growth names. I have no idea where rates will be, but you should be prepared to add to your position in either high-growth company on weakness should rates move unexpectedly higher.

Goodfood Market: A Canadian meal-kit leader

GoodFood is a meal-kit delivery service that’s continued to sag over the past several months in anticipation of a mass cancellation of meal-kit subscriptions in the post-COVID environment. Grocery shopping and dining in won’t seem like a dangerous chore anymore. And many Canadians will surely hit the pause button, as they look to get back into the realm of the physical.

The selloff in Goodfood seems warranted, but I think it’s a bit overblown. Pandemic tailwinds are going to fade, and retention will be pressured. That said, I believe Goodfood can continue taking share amid less-favourable conditions. Operating margins are headed in the right direction, and as the firm bolsters its grocery offering, I think it can win back a huge chunk of the subscribers who will be inclined to cancel as the economy reopens.

Moreover, there’s always a chance that COVID-19 could spark another wave. The insidious “Delta plus” variant is out there, and if lockdowns cut this summer short, Goodfood will get another boost. Undoubtedly, Goodfood is a great hedge against a worsening pandemic.

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 Goodfood Market Corp.

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