3 Growth Stocks Down More Than 50% to Buy for Outsized Gains in 2023

Beaten-down growth stocks such as Shopify provide investors the opportunity to derive exponential gains once market sentiment improves.

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Growth stocks have staged a remarkable comeback in the first month of 2023 after grossly underperforming the markets last year. But despite the recent uptick in share prices of growth companies, they are trading significantly below all-time highs.

While the stock market is expected to remain volatile in the near term, it continues to provide opportunities for investors to create wealth over time. Here, we’ll look at three beaten-down growth stocks that Canadian investors can buy for outsized gains in 2023.

Shopify

Among the fastest-growing TSX stocks since its initial public offering, Shopify’s (TSX:SHOP) revenue growth has decelerated considerably in the last three quarters. Down 70% from all-time highs, Shopify is currently valued at a market cap of $80 billion.

Shopify managed to triple its sales from US$1.57 billion in 2019 to US$4.61 billion in 2021. However, its revenue growth has slowed to 25% in the last four quarters due to the reopening of economies and lower consumer spending.

It also reported a negative free cash flow of US$200 million compared to a positive free cash flow of over US$450 million in 2021.

But the e-commerce giant continues to expand its portfolio of products and services. It now offers a slew of ancillary solutions to its merchant base ranging from payment processing and money management to digital marketing and third-party integrations.

Shopify has onboarded more than two million merchants on its platform and ended the third quarter with a merchant attach rate of 2.14% — a record high for the company. The attach rate is the total merchant solution sales expressed as a percentage of total gross merchandise volume.

Given consensus price target estimates, SHOP stock is priced at a discount of 20% right now.

Green Thumb Industries

One of the largest cannabis producers in the U.S., Green Thumb Industries (CNSX:GTII) is valued at a market cap of $2.4 billion. GTII stock is trading almost 80% lower compared to all-time highs.

Unlike most other cannabis producers, Green Thumb reports consistent profits. In the third quarter of 2022, the company reported its 10th consecutive quarter of positive net income. In the last three quarters, Green Thumb’s net income stood at US$63.2 million — an increase of 20% year over year. Comparatively, its sales are up 17% year over year at US$758 million in this period.

Green Thumb operates 77 dispensaries in 15 states south of the border. A few of these regions generate more than US$1 billion in marijuana sales each year, providing Green Thumb with enough room to expand its top line.

Priced at 26 times forward earnings, GTII stock is reasonably valued. Analysts expect the marijuana stock to surge close to 200% in the next 12 months.

Well Health

The final stock on my list is Well Health (TSX:WELL), a Canadian company operating in the health-tech space. Its sales in the third quarter rose 47% year over year to $145.8 million, allowing Well Health to report record adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $27.5 million, up from $22.3 million in the year-ago period.

Its Virtual Services business grew by 75% organically and is now the largest of Well’s three main business, accounting for 36% of total sales.

The company increased its guidance for 2022 and expects sales to touch $565 million compared to its earlier forecast of sales of $550 million. It also forecasts to end the year with more than $100 million in adjusted EBITDA in 2022.

WELL stock is currently priced at a discount of 100% compared to consensus price target estimates.

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 recommends Green Thumb Industries. The Motley Fool has a disclosure policy.

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