Canadian stocks have been soaring since the COVID-19 market crash in early 2020. Since April of last year, the S&P/TSX Composite Index is up more than 25%. Close to 20% of those gains have come in this year alone.
It’s been a great year to hold Canadian stocks but a nervous one for anyone looking to invest. Valuations of many of the top growth stocks on the TSX are trading in a price range that not all investors may be comfortable paying.
I wouldn’t let valuation alone stop you from investing in a Canadian stock that you’re bullish on. As a long-term investor, my focus is on finding companies with strong competitive advantages and sizeable market opportunities.
I’m not completely ignoring valuation; I’m just not letting it be a primary decision factor. I accept that if I own a company trading at a sky-high valuation, volatility should be expected, at least in the short term. But over the long term, my hope is that the stock will return market-beating gains.
I’ve reviewed two top Canadian stocks that I believe are worth paying a premium for. If you’re willing to hold on to your shares for five years or longer, I’d suggest putting these two growth stocks at the top of your watch list right now.
Canadian stock #1: Lightspeed
At a market cap now over $20 billion, the comparisons to the early days of Shopify are becoming more and more justified.
The tech stock has been richly valued, ever since it joined the public market. So, if you’re waiting for this Canadian stock to be trading at a reasonable price, you may be waiting a while.
A key reason why investors are so bullish on Lightspeed is because the company continues to expand its market opportunity. Long gone are the days when Lightspeed was known solely as a point-of-sale hardware provider to Canadian brick-and-mortar retailers.
Today, Lightspeed has a global presence serving over 150,000 customers locations spread across more than 100 countries. In addition to that, the growth of the company’s product offering is matching the speed of its global expansion.
Lightspeed is now able to support its customers throughout many areas of their businesses. Digital marketing, inventory management, and accounting are just three examples of how Lightspeed supports its customers today.
At a price-to-sales (P/S) ratio of just about 70, Lightspeed stock is trading in very frothy territory. I’ll gladly pay a premium to add to my Lightspeed position because I’m planning on holding on to my shares for at least the next decade.
If you’ve got the time horizon that can handle the expected volatility in the short term, Lightspeed should certainly be on your radar.
Canadian stock #2: Docebo
At a P/S ratio of close to 50, Docebo may not be trading at the same high-price range as Lightspeed, but it’s far from cheap.
The two companies not only joined the TSX at similar times but have also put up comparable growth. Docebo joined the TSX in October 2019 and is nearing a gain of 750% since then.
The Canadian stock has seen demand for its cloud-based learning platforms explode during the pandemic. The rise in remote work over the past year and a half has made Docebo’s products that much more important to businesses with remote employees.
I understand that some employees will eventually return to shared office spaces, but I’m bullish on the long-term rise in the trend of remote work.
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 Nicholas Dobroruka owns shares of Lightspeed POS Inc and Shopify. The Motley Fool owns shares of and recommends Docebo Inc., Lightspeed POS Inc., and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify.