After an underwhelming year in 2022, several growth stocks across sectors have regained momentum in recent months. Despite the threat of a sluggish economy, inflation, and interest rate hikes, quality growth stocks have staged a comeback year to date.
While a recession can easily derail this momentum, it is impossible to time the market bottom. Yes, revenue growth for most companies will decelerate and profit margins will contract in the near term. But buying fundamentally strong stocks and holding them over time has typically allowed investors to derive exponential gains.
Here are three such stocks every Canadian should own in April 2023.
Snowflake stock
Snowflake (NYSE: SNOW) offers a cloud-powered data platform that allows enterprises to integrate data sets and execute diverse analytic workloads. The company expects its total addressable market to touch US$248 billion by 2026, providing it with enough room to expand sales. Snowflake ended fiscal 2023 with revenue of $2.1 billion.
Snowflake reported a net revenue retention rate of 158% in Q4 of fiscal 2023 (ended in January). It suggests existing customers increased spending on the Snowflake platform by 58% in the last 12 months.
Snowflake now services 7,828 customers, of which 330 generate at least US$1 million in annual sales. A high customer retention rate and rapid expansion should act as organic tailwinds for Snowflake in 2023 and beyond.
Its gross margins have also improved to 75% in fiscal 2023, compared to 69% in the year-ago period. Due to its improving margins, analysts expect adjusted earnings for the company to expand from $0.25 per share in fiscal 2022 to $1.01 per share in fiscal 2024.
Dollarama stock
A recession-resistant TSX stock, Dollarama (TSX: DOL) has already returned 700% to shareholders in the last 10 years. Despite its outsized gains, the Canadian discount retailer is priced at 26.6 times forward earnings. This multiple is very reasonable, given Dollarama is forecast to increase adjusted earnings by 18.6% annually in the next five years.
Despite a challenging macro environment, Dollarama increased comparable store sales by 12% and adjusted earnings by 27% in fiscal 2023 (ended in January), reinforcing the relevancy of its value retail concept.
Due to its widening cash flows and earnings, Dollarama also pays investors annual dividends of $0.28 per share, indicating a forward yield of 0.3% and payout ratio of less than 10%.
Right now, Dollarama stock is priced at a discount of 10% to consensus price target estimates.
Neighbourly Pharmacy stock
The final growth stock on the list is Neighbourly Pharmacy (TSX: NBLY), a company valued at $1 billion by market cap. Among Canada’s fastest-growing network of independent pharmacies, Neighbourly increased same-store sales by 4.1% year over year in Q3 of fiscal 2023 (ended in December).
The company’s focus on rapid expansion allowed it to grow sales by 97% to $265.3 million and adjusted EBITDA (earnings between interest, tax, depreciation, and amortization) by 97% to $28 million in Q3.
NBLY ended Q3 with 284 pharmacy locations and is forecast to report sales of $750 million in fiscal 2023. Priced at 1.3 times forward sales, NBLY stock is trading at a discount of over 35% compared to consensus price target estimates.
