3 Spring-Loaded Stocks You’ll Want to Own When They Snap Back

Growth stocks trading on the TSX such as Shopify are well poised to deliver game-changing returns to investors in the next 12 months.

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A tumultuous equity market has driven valuations of growth stocks significantly lower in 2022. Investors have lost billions of dollars this year, as market participants are worried about a range of macroeconomic issues, including supply chain disruptions, inflation, and rising interest rates.

While there is a good chance for growth stocks to move lower in the next 12 months, multiples across the board have normalized to a large extent. As market timing is impossible, let’s take a look at three quality TSX stocks you would want to own before the market rallies again.

Shopify

One of the fastest-growing TSX stocks during the onset of the COVID-19 pandemic, Shopify (TSX:SHOP) is currently trading 76% below all-time highs. But the company’s expanding addressable market and a widening suite of products and services should drive top-line growth in the upcoming decade.

A report from eMarketer estimates e-commerce sales to touch US$8.1 trillion in 2026, up from US$5.2 trillion in 2021, indicating a compound annual growth rate of 9% in this period.

While revenue growth has decelerated in recent quarters, Shopify is forecast to increase sales by 22.3% to $7.52 billion in 2022 and by 20.6% to $9.1 billion in 2023.

Another key driver for the company will be the ability to scale the Shopify Fulfillment Network, which simplifies supply chain processes for its merchant base.

Valued at seven times forward sales, Shopify stock continues to trade at a premium. But it’s also trading at a discount of 45% to consensus price target estimates.

Well Health

A digital health company, Well Health (TSX:WELL) has increased sales from $32.8 million in 2019 to $302 million in 2021. Analysts forecast WELL stock to increase revenue to $567 million in 2022 and $653 million in 2023. So, WELL stock is trading at just one times 2023 sales, which is very cheap.

Over the years, Well Health has deployed significant capital to grow via highly accretive acquisitions. Its enviable top-line metrics have allowed the stock to surge over 2,500% since its initial public offering in April 2016. However, shares of Well Health are also trading 69% below all-time highs right now.

Bay Street analysts expect WELL stock to almost triple in the next 12 months.

Dye & Durham

The final growth stock on my list is Dye & Durham (TSX:DND), a company that provides mission-critical software for legal and business professionals. It aims to deliver critical data insights to support corporate transactions while providing payment infrastructure to its base of enterprise customers.

Since its inception, DND has acquired over 30 companies, allowing it to grow revenue at an annual rate of 114% in the last three years. Unlike most high-flying tech stocks, Dye & Durham reports consistent profits and has maintained an average EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 57% in recent years.

Valued at $885 million by market cap, DND stock is priced at less than two times forward sales, which is quite reasonable for a growth stock. Its adjusted earnings might also improve to $0.46 per share in 2023 compared to $0.11 in 2021.

Analysts tracking DND stock expect shares to increase by 80% in the next 12 months.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

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