Growth stocks can be very interesting assets to hold in a portfolio. In my opinion, there are two main reasons for this. First, those businesses tend to be very exciting to follow. This is because growth stocks tend to operate in fast-moving industries and are continually innovating in order to stay ahead of their competitors. Second, growth stocks have the potential to outpace the broader market, which could result in lucrative returns over the long run.
I’ll discuss two hot growth stocks that investors should consider buying before they take off.
This proven winner should be in your portfolio
If there’s one growth stock that investors should consider buying today, it’s Constellation Software (TSX:CSU). For those that are unfamiliar, this is a conglomerate tech company that has made a name for itself over the years for being a serial acquirer of vertical market software (VMS) businesses. Since its initial public offering in 2006, Constellation Software stock has gained more than 12,600%. That represents a compound annual growth rate (CAGR) of more than 30% over that period.
For most of its history, Constellation Software has focused on acquiring small- and medium-sized VMS businesses. That has served it very well, as the company has been able to become an expert in assessing and acquiring those kinds of companies. However, as stated in the opening, growth stocks are always searching for ways to stay ahead of their competition. With that in mind, Constellation Software has recently decided to begin targeting large VMS businesses for acquisition.
It’s expected that Constellation Software could stumble at first, as it tries to integrate this segment of its business into its playbook. However, with its founder Mark Leonard continuing to lead the company, I’m confident that Constellation Software could be successful in this endeavour. This stock has gained nearly 30% over the past three months. However, over the past year, Constellation Software stock has only gained about 10%. That’s much less than its annual average. I believe the stock could skyrocket over the coming years, making up for those lost gains.
The e-commerce industry is projected to grow at a fast rate
If you’re looking for another growth stock to add to your portfolio, then consider Shopify (TSX:SHOP). Since its founding, this has been one of the most innovative Canadian companies. Shopify has quickly grown from being a small tech start-up in Ottawa to one of the largest players in the global e-commerce industry. It’s estimated that over one million merchants rely on its platform today. That includes everyone from the first-time entrepreneur to large-cap enterprises like Netflix.
Shopify looked very solid during its most recent earnings presentation. The company announced that its fourth-quarter revenue had increased 26% year over year. In my opinion, that’s a very good performance in a year where consumer spending hasn’t been the highest. With the e-commerce industry projected to grow at a CAGR of nearly 15% through to 2027, Shopify has a great opportunity to continue its strong growth.