Stocks are known for helping investors create generational wealth. But before investing, investors should look for the shares of companies with a solid revenue base, a large and growing addressable market, a focus on innovation, and the ability to deliver strong growth even at scale. In addition, investors should look for diversification to reduce the portfolio’s overall risk.
With this backdrop, let’s look at two Canadian stocks that are backed by fundamentally strong business models, multiple growth catalysts, and the ability to deliver solid growth consistently. These stocks have the potential to deliver outsized returns in the long term.
Shopify (TSX:SHOP) is a must-have stock to create wealth. The stock delivered exceptional returns since it was listed on the TSX. However, the easing of COVID-led restrictions and moderation in e-commerce demand weighed on its stock price. Shares of this tech giant lost substantial value and are trading cheap, providing an excellent buying opportunity near the current levels.
Shopify continues to deliver strong revenue growth, despite its large-scale and macro headwinds. Moreover, it is inching towards consistently delivering profitable growth, which is positive. With the structural shift in selling models toward omnichannel platforms, Shopify, with its innovative products like Payments, Capital, and Markets, is poised to benefit from incremental demand.
The company continues to bring more merchants to its platform. Further, more merchants are buying its multiple modules, which should drive profitability. It also announced the sales of its logistics assets, thus alleviating the fear of pressure on margins. Also, it is streamlining its operations and is focusing on reducing costs which will likely drive sustainable, profitable growth in the long term and support its stock price.
While Shopify is poised to deliver stellar financials, its stock is trading at the next 12-month EV/sales (enterprise value/sales) multiple of 11.2, reflecting a significant discount from its historical average and indicating solid upside potential.
goeasy (TSX:GSY) is one of my favourite growth stocks, and there are good reasons for that. The company offers loans to subprime borrowers and has been swiftly growing its operations and delivering stellar financial performances. Notably, goeasy’s revenue has grown at a CAGR of 20% in the past five years. At the same time, its earnings increased at a CAGR of 27%.
Thanks to this stellar growth, goeasy stock gained about 181% in five years. This outperformance comes despite a recent pullback in goeasy stock.
Notably, goeasy stock has lost substantial value in the recent past on fears of recession and its impact on subprime borrowers. Despite investors’ skepticism, goeasy continues to deliver stellar growth led by solid loan originations, growth across all products and customer acquisition channels, and steady credit and payment volumes.
goeasy’s top line will increase at a double-digit rate in the coming years, led by higher loan originations, a large lending market, and expansion of its consumer loan receivable portfolio. Furthermore, the company’s stable credit performance, improved product mix of the loan portfolio, and solid credit and underwriting enhancements will likely cushion its bottom line.
goeasy stock is trading at the next 12-month price-to-earnings multiple of 6.3, which is nearly half of the pre-pandemic levels. The stock offers significant value as its earnings continue to grow at a double-digit rate, while it offers a decent yield of about 4%.