Investors who have high risk tolerance can opt for high-risk, high-reward stocks. These companies tend to be found in the growth areas of the market, namely the tech sector.
Of course, growth stocks aren’t necessarily in favour right now. Rising interest rates have compressed valuations, leading to downside pressure on the riskiest stocks.
But as with any sector, there are always exceptions to consider. These two companies each have fantastic long-term charts and have weathered the storm quite well of late. Here are two of the top high-risk, high-reward stocks I think are worth buying here.
High-risk, high-reward stocks to buy: Constellation Software
Constellation Software (TSX:CSU) is involved in the business of buying, developing and management of industry-specific, mission-critical software firms. It operates in both public and private markets in Canada, the U.S., the U.K., and other European countries.
According to recent reports, Constellation Software, along with Lumine Group (one of its subsidiaries), has completed the acquisition of WideOrbit Inc. It is a vertical market software company in the U.S., which will function as an autonomous business unit under Lumine.
Moreover, the company has also reported strong earnings in the fourth quarter (Q4) of 2022. Its quarterly profit figures stand at US$152 million. This is a big jump from last year’s same quarter’s US$124 million. With diluted earnings per share for 2022’s last quarter also increasing to US$7.19 per share compared to Q4 2021’s US$5.86 per share, there’s a lot to like about this company’s prospects moving forward.
Much of this growth has been generated via the acquisition of software companies over time. Given the fragmented nature of this market, I see an essentially unlimited growth runway for the company, which is clearly being priced in at these levels.
Shopify (TSX:SHOP) is a Canadian e-commerce platform provider that operates in most of the key markets globally. With a focus on the United States, the Middle East, Europe, Latin America, and the Asia Pacific, Shopify has grown into a leader in providing small- and medium-sized businesses with a platform to set up online stores. It also allows merchants to showcase and sell their products from mobile and web applications, physical stores and various other sales channels to an international audience.
Shopify’s growth has slowed in recent quarters, from its post-pandemic surge which took everyone by surprise. Indeed, much of the recent slowing can be attributed to difficult comparables, given the company’s previously torrid pace of growth.
That said, Shopify still grew revenue by 26% in Q4 of 2022. Its profits from subscriptions and merchants solutions also came in 11% and 26% higher, respectively. Thus, this is a company that’s seeing substantial growth, which could pick up if we see yet another slowdown in the brick-and-mortar space.
Additionally, in 2022, Shopify introduced several features that can help scale its business to new heights. For instance, POS Go, which is a unique mobile Point of Sales device, offers everything from card swipe features to barcode scans and more. This e-commerce platform also developed Shopify Collabs. This is a sales network where merchants can connect with content creators who can showcase their products to new audiences.
Apart from these catalysts, Shopify has also signed deals with major global organizations like IBM Consulting, Deloitte, Accenture, KPMG, Ernst & Young, etc. This move will help facilitate this e-commerce platform’s adoption among the client base of these international brands.