The easing of inflation and an expected slowdown in interest rate hikes could provide some respite to Canadian stocks. Notably, high-growth Canadian stocks, primarily from the technology sector, saw significant erosion in their market cap, as investors turned risk-averse amid high-interest rates and valuation concerns.
However, with an improvement in the macro environment, fundamentally strong tech stocks would recover fast and deliver outsized returns in the medium to long term. So, if you plan to invest in TSX tech stocks, here are my three top picks poised to recover fast.
But before you invest, understand your risk tolerance, as stocks from the tech space carry a higher risk and could be highly volatile in the short term. Let’s begin.
Shares of the digital health company WELL Health (TSX:WELL) have gained about 46% year to date in 2023. Its stock could rise further, as the company continues to produce strong financials. Its omnichannel business model with predictable revenue, positive cash flows, and strong organic growth provides a solid foundation for growth.
WELL Health’s revenue increased by 47% in the third quarter of 2022. What stands out is the robust organic growth in its biggest revenue segment. It’s worth highlighting that Virtual Services is the company’s largest business segment and carry a high margin. During the third quarter, its Virtual Services segment’s organic revenue increased by 75%. Further, it recently provided preliminary patient visits data for the fourth quarter, wherein its omnichannel patient visits increased by 42% year over year.
While the company is performing well, its stock trades cheap. WELL Health is trading at the next 12-month EV/sales (enterprise value/sales) ratio of 2.2, which is well below its historical average of 5.8. Overall, WELL Health is poised to recover swiftly and deliver significant returns as the economy improves.
Lightspeed (TSX:LSPD) provides tools that support omnichannel commerce. As the economy improves, retailers and restaurant operators will likely spend more on modernizing their POS (point-of-sale) platform and expand to newer locations, which will drive demand for Lightspeed’s offerings and support its financials and stock price.
Lightspeed’s focus on customers with high gross transaction value augur well for growth. The strategy will drive its average revenue per user and reduce lower churn. Moreover, its Payments penetration rate is increasing, which provides a solid foundation for growth. In addition, Lightspeed’s strategic acquisitions will likely accelerate its growth and add more customer locations.
Lightspeed stock is trading incredibly cheap. Its next 12-month EV/sales multiple of 1.7 is significantly lower than the pre-pandemic levels of 18.5. Its strong potential for growth and low valuation make it a solid investment at current levels.
Nuvei (TSX:NVEI) is a Canadian payment technology company poised to recover quickly. The expected improvement in volume and reacceleration in e-commerce will likely give a significant boost to the financials and shares of Nuvei.
It continues to add new alternative payment methods, which bode well for growth. Also, its investments in sales and distribution and cross-selling and upselling opportunities through land and expand strategy will likely support its growth. In addition, its entry into new geographies and the recent acquisition of Paya will broaden the addressable market and accelerate growth.
Nuvei stock is trading at a next 12-month EV/sales ratio of 4.2, reflecting a significant discount from its historical average of 16.8, providing a solid entry point near the current levels.