The last year was extremely tough for stock market investors, as several major indices entered bear market territory, primarily driven by the selloff in tech stocks. However, the accelerated pullback in share prices has dragged valuations of several growth stocks lower, making them top contrarian bets right now.
Here are two such TSX stocks that could double in 2023.
One of the largest companies in Canada, shares of Shopify (TSX:SHOP) have already surged 72% year to date. Despite its stellar comeback, Shopify stock is still down 62% from all-time highs, valuing the company at a market cap of $103 billion.
Investors are worried about a deceleration in revenue growth for e-commerce companies, including Shopify, in addition to macro headwinds such as rising interest rates and inflation. However, amid a sluggish economy, the tech giant increased gross merchandise volume, or GMV, by 15.9% to US$49.6 billion in the first quarter (Q1) of 2023. This allowed the company to increase sales by 25% year over year to US$1.5 billion in the March quarter.
Despite falling profit margins, Shopify reported a free cash flow of US$86 million in the quarter compared to a negative free cash flow of US$41 million in the year-ago period. In order to improve the bottom line, Shopify recently announced its exit from the logistics vertical, which should drive future cash flows higher.
Alternatively, the exit will also lead to US$1.5 billion in impairment charges, which suggests Shopify overpaid for its logistics acquisitions in recent years.
Shopify has onboarded over two million merchants onto its platform, allowing it to increase monthly recurring revenue to US$116 million in Q1. Several merchants are now shifting to full-priced subscription plans, improving the revenue visibility for investors.
Shopify ended the year with almost US$5 billion in cash, providing it with enough flexibility to reinvest in organic growth as well as acquisitions.
Priced at 11.5 times forward sales, Shopify stock continues to trade at a premium. However, it’s also forecast to increase adjusted earnings from $0.05 per share in 2022 to $0.69 per share in 2024.
Well Health stock
Another fast-growing TSX stock, Well Health (TSX:WELL) has already returned 62% to investors in 2023. A practitioner-focused digital healthcare company, Well Health aims to leverage technology to empower healthcare practitioners.
It has already built the largest network of clinics that support primary care, specialized care, and diagnostics services in Canada. Its robust platform provides solutions ranging from electronic medical records, telehealth platforms, practice management, billing, data protection, and revenue cycle management.
Over the years, Well Health has pursued several acquisitions, allowing it to expand revenue at a stellar pace and enter new markets. For instance, it acquired CRH Medical in 2021 to gain traction south of the border, the largest healthcare market globally.
Analysts tracking Well Health expect it to increase sales from $569 million in 2022 to $771 million in 2024. So, WELL stock is priced at less than two times forward sales, which is really cheap.
Well Health stock has already surged 4,490% since its initial public offering in 2016. It’s currently trading at a discount of 91% to consensus price target estimates.