A Profitable TSX Growth Stock to Buy in January 2023

PetValu (TSX:PET) stock could be Canada’s top defensive stock for those seeking value and profitable growth in 2023.

| More on:
potted green plant grows up in arrow shape

Image source: Getty Images

With such an unpredictable and choppy bond market, investors should insist on profitable growth companies if they seek to limit downside. While some courageous growth investors will make money from a speculative tech turnaround, I’d argue that the downside risks remain too elevated.

Sure, a so-called zombie stock that’s fallen 90% may be a deep-value stock that could double up many times over if things turn a corner. At the same time, the name could be destined to fall to or around zero. Indeed, risking all of one’s wealth on an investment is never a good idea, no matter how high the potential rewards are. So, if you can’t value a stock, it’s probably best to limit your exposure to capital you’re willing to part with.

Time to get picky with growth stocks: The case for earnings growth over sales growth

Indeed, the lessons learned in 2022 will be put to work in 2023. Gone will be the days of buying stocks because of the direction of their price. Value and profitability are what lead to higher share prices over the long haul. As we encounter bumps in the road, defensive growth stocks can provide investors greater peace of mind without compromising on long-term returns.

In this piece, we’ll consider one profitable stock that can help investors build wealth in a higher-rate world that could see economic growth stall.

PetValu Holdings

PetValu (TSX:PET) is quickly becoming one of my favourite Canadian stocks to buy ahead of a mild recession year. The pet-supply retailer has found a way to grow in a competitive market environment. The stock clocked in 18% in gains for 2022 — pretty terrific results, given the severity of the 2022 market selloff.

At 27.7 times trailing price to earnings (P/E), PET stock may not look like a bargain. Given the resilience of sales in the face of economic headwinds and the firm’s plans to nearly double its store count over the next 15-20 years (about 1,200 stores from 633), I’d not be afraid to buy the name at 30-35 times P/E.

Today, Dollarama (TSX:DOL) stock trades at north of 30 times P/E, likely due to its defensive growth profile.

Arguably, PetValu has a superior defensive grower, given the “humanization-of-pets” trend, which seems alive and well, even in the face of a downturn. Indeed, I think PetValu’s long-term growth targets are a tad conservative. The secular tailwinds in the pet space are incredibly strong. As long as PetValu can sustain its moat in Canada, it’ll be able to keep rivals at bay and perhaps accelerate its new-store rollout.

Higher prices and economic hurdles aren’t stopping pet owners from continuing to spoil their pets. If anything, tough times could call for greater pet spending, given the comforts that pets provide in harsh times.

Indeed, pet supplies are a very niche corner of retail that can offer defensive (and profitable) growth. Such firms are a rarity, making them worthy of a scarcity premium.

Bottom line

Over the years, PetValu has been chipping away at its debt load. Next up, look for PetValu to put its foot on the gas, as it looks to open up new shops across the country while continuing to invest in its e-commerce capabilities.

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 Pet Valu. The Motley Fool has a disclosure policy.

More on Investing

calculate and analyze stock
Stocks for Beginners

The Top 3 Most Shorted Stocks in Canada Today

These TSX stocks may be up now, but short-sellers are betting they're about to tumble in the next few weeks.

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, February 1

The Fed’s interest rate decision and other important economic releases may keep TSX index highly volatile today.

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Better Buy: Shopify Stock or Amazon?

Let's see which e-commerce stock is a better buy between Shopify and Amazon in 2023 and beyond.

Read more »

Growth from coins
Stocks for Beginners

Got $5,000? These 2 Growth Stocks Are Smart Buys

Are you looking for some smart buys for your portfolio? Here are two great options to buy now while you…

Read more »

stock research, analyze data
Bank Stocks

Better Buy: TD Stock or Bank of Nova Scotia?

TD Bank and Bank of Nova Scotia still look cheap. Is one a good buy today?

Read more »

Dial moving from 4G to 5G
Dividend Stocks

Down by 15%: Is BCE Stock a Good Investment in January 2023?

Few companies are truly “too big to fail,” but most market leaders are far more resilient against market headwinds or…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Looking for $200/Month in Alternative Income? Buy 530 Shares of This Stock

Do you want to earn $200 monthly alternative income for the next few years? Then accelerate your investments in this…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Deadline Coming: 3 TFSA Stocks to Buy Now Before Dividend Payouts

Invest in RNW stock and 2 other TFSA friendly names before this fast-approaching deadline to get the full 2023 dividend.

Read more »