The persistently high inflation, rising interest rates, and macro uncertainty could continue to pose challenges for equity investors. However, if you plan on holding stocks for five to 10 years, now could be a great time to invest. Notably, several top Canadian stocks, such as Shopify (TSX:SHOP) and Aritzia (TSX:ATZ), are trading at significant discounts, offering good entry points for long-term investors.
Both Shopify and Aritzia stocks have generated multi-fold returns for their shareholders. Further, both these companies have solid fundamentals and multiple growth vectors, implying investors can rely on them to outperform the broader markets in the long run.
As Shopify and Aritzia look attractive near the current levels, let’s examine which stock could deliver higher returns.
Secular tailwinds to drive Shopify stock
Shopify is a leading platform offering tools to support multi-channel commerce. The fear of economic slowdown and customers returning to physical stores following the withdrawal of COVID restrictions dragged its stock down. What stands out is that businesses continue transitioning towards omnichannel selling models. Meanwhile, Shopify, with its innovative products, is well positioned to capitalize on this structural shift, implying that the company will likely deliver stellar growth in the coming years.
Despite challenges, this large-cap company delivered a 21% year-over-year growth in its 2022 sales. This is important and reflects the strength of its business model, as it was up against very tough year-over-year comparisons. For instance, its revenue increased by 57% and 85% in 2021 and 2020, respectively.
Looking ahead, its growing market share in the U.S. retail and growing adoption of its products, including, Payments, Capital, and Markets, augur well for growth. Also, Shopify’s offline payment offerings are witnessing higher demand, which is encouraging.
In addition, Shopify’s expansion of marketing and sales channels and strengthening of fulfillment offerings bode well for growth. Shopify trades at the next 12-month enterprise value/sales ratio of 8.2, which is at a multi-year low, making this tech stock attractive near current levels.
Aritzia poised to deliver profitable growth
Aritzia stock witnessed a pullback due to the increased pressure on consumer discretionary spending amid high inflation and rising interest rates. Despite concerns, Aritzia continues to grow its revenue and earnings at a double-digit rate.
In aggregate, Aritzia’s revenue increased by over 48% in the three quarters of the current fiscal year. At the same, its bottom line registered an increase of 22.7%.
The solid mix of full-priced sales, solid demand, and continued expansion of its boutiques in the domestic and American markets bodes well for growth. Besides its growing footprint, the strength of its e-commerce platform and entry into new verticals will likely support its growth. Thanks to the ongoing momentum in the business, Aritzia forecasts a 15-17% average annualized growth in its revenues through 2027. In addition, its earnings will likely grow faster than sales.
Aritzia stock is trading at the next 12-month price-to-earnings multiple of 20.4, which is lower than its historical average of about 25.8, offering a good entry point.
Bottom line
Both companies have solid fundamentals, good growth prospects, and are trading cheap. However, the increased visibility over Aritzia’s future sales and earnings is positive, making it a more compelling investment at current levels.
