The increasing interest rates and macro uncertainty have taken a toll on growth stocks. However, this pullback is an attractive opportunity for investors to buy top Canadian stocks at prices well below their historical averages.
Keeping with the background, I’ll focus on two growth stocks with strong potential to deliver outsized returns over the next decade. These fundamentally strong Canadian stocks have well-established businesses, have a growing earnings base, and are trading at a discount, providing an opportune time for investors to capitalize on their low prices.
However, investors should note that the macro headwinds could limit the upside in these two stocks in the near term. Let’s begin.
A top growth stock from the financial services sector
goeasy (TSX:GSY) is a top bet in the financial services space to generate solid capital gains in the long term. At the same time, investors can earn steady dividend income by investing in goeasy stock. This financial services company offers unsecured and secured loans the non-prime Canadians.
goeasy stock has gained about 167% in the last five years, reflecting an annualized return of about 38%. Its market-beating returns are supported by double-digit revenue and earnings growth. Its sales and earnings increased at a compound annual growth rate of 20% and 27%, respectively, in the last five years.
On top of this, goeasy has enhanced its shareholders’ returns by increasing its dividend in the past nine consecutive years.
goeasy’s management is upbeat and expects the momentum in its business to sustain on the back of higher loan originations. The company projects its consumer loan portfolio to reach $5 billion by 2025 from $2.8 billion in 2022. This will lead to double-digit growth in its top line over the next three years.
While its top line is expected to grow at a double-digit rate, its operating margin is forecasted to expand by 100 basis points per year. Strong sales, operating margin expansion, and operating leverage will cushion its bottom line and, in turn, its stock price and dividend payments. The stock has corrected from its highs and presents an excellent buying opportunity.
A top consumer stock
Despite pressure on consumer spending, Aritzia (TSX:ATZ) has managed to grow its sales and earnings at a double-digit rate, making it a top long-term stock. While Aritzia stock has witnessed a pullback on macro concerns, it has delivered a return of over 217% in five years, reflecting a CAGR of 46.07%.
This multi-channel retailer’s stellar returns are backed by its solid revenue and earnings, which have increased at a CAGR of 19% and 24%, respectively, in the last five years.
The strong demand for its products, boutique expansion, and a favourable mix of full-priced sales indicate that the momentum in its business will sustain. Aritzia sees its top line growing at a CAGR of 15-17% through fiscal 2027. At the same time, Aritzia’s earnings are forecasted to grow faster than revenues.
While Aritzia’s business is growing swiftly, its stock witnessed a pullback, presenting a good buying opportunity for long-term investors.