It may not feel like it, but today is a great time to invest in Canadian growth stocks. Certainly, it is a better time to invest than even just a few months ago when valuations were sky high. In fact, many top Canadian growth stocks have pulled back to a place that seems either reasonable or just downright cheap.
Buy Canadian growth stocks when everyone hates them
It is when the market feels the worst that investing can often be the best. It is one of the tricky psychological traits that come with investing in the stock market. Often, when stocks are soaring, we feel happy, and it is easy to buy Canadian stocks. However, when they are crashing, buying stocks seems like the worst idea.
Yet, look back at every correction over the past 100 years. Every drop would have been a great buying opportunity. When you buy stocks on the cheap, you have an even better chance to gain outsized returns over time. If you have as little as $2,000 to invest right now, here are two Canadian growth stocks I’d be eyeing now.
Aritzia: A Canadian growth stock with a massive market opportunity
Over the past few years, Aritzia (TSX: ATZ) has become a fashion sensation across North America. Its wide selection of “everyday luxury” brands have gained a strong market position in Canada. Now, it is quickly gaining strong traction in the United States. The U.S. market is almost 10 times larger than Canada.
Despite the pandemic, the company has proved the resilience of its in-store and online (omni-channel) sales approach. Last year, its annual sales grew by 74% to almost $1.5 billion. Likewise, EBITDA and earnings per share increased by a whopping 276% and 560%, respectively.
The company is very profitable, and it earns a significant amount of excess cash. While growth could slow slightly this year, it still has a very large market for expansion over the coming years. This Canadian stock is down 26% this year and it is trading at a fair valuation today.
Nuvei: A fallen star with lots of upside if it executes
Another growth stock that is starting to look attractive again is Nuvei (TSX: NVEI)(NASDAQ: NVEI). As with most e-commerce and payments-related stocks, this stock has been absolutely crushed. It is down 24% this year and 65% from its all-time highs set last year.
While sentiment is sour, the stock is starting to trade at a reasonable valuation multiple. It trades with an enterprise value-to-EBITDA ratio of 15 times. For context, this is the cheapest this Canadian stock has traded since its initial public offering (IPO).
Nuvei just reported strong +40% revenue and adjusted EBITDA growth. It even increased its guidance for the coming quarter. It still projects +30% revenue growth this year. Likewise, it has maintained its mid-term 30% year-over-year growth target.
If it can execute like it says, there could certainly be significant upside for this Canadian stock. The company just bought back 1.2 million shares. These were completely covered by free cash flows generated in the quarter, so that is certainly a positive sign. The company has a solid balance sheet, so its chances of longer-term success remain elevated.
