Emerging Canadian Stocks With the Potential to Outperform the Market

TSX stocks such as Pet Valu are well poised to deliver outsized gains to investors in 2023 and beyond.

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The S&P 500 entered bull market territory last week after the longest bear market since 1948. While the macro economy remains uncertain, it’s impossible to time the market. Moreover, on average, the flagship index south of the border gains over 17% in the next 12 months, following a 20% gain from 52-week lows.

So, it’s an ideal time to purchase beaten-down growth stocks trading at a discount. Here are three emerging Canadian stocks with the potential to outperform the market.

Thinkific Labs stock

A company engaged in the development, marketing, and support management of cloud-based platforms, Thinkific Labs (TSX:THNC) is valued at a market cap of $330 million. Its robust platform allows entrepreneurs and businesses to create, market, and sell digital learning products.

In the first quarter (Q1) of 2023, Thinkific increased sales by 20% year over year to $14.1 million, as creators adopted higher-tier plans and the expansion of its payments vertical. Its net loss also narrowed to $7 million from $12 million in the March quarter.

The creator economy is forecast to double to US$480 billion by 2027, according to a report from Goldman Sachs, providing enough room for Thinkific to expand its top line.

While Thinkific remains unprofitable, the company expects to exit the year with positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization).

Launched in late 2021, Thinkific Payments has seen strong adoption. More than one-fourth of all transactions on its platform are now powered by the company’s payment processing platform. Thinkific Payments recently surpassed $100 million in payment volume processed to date. The TSX stock is now trading at a discount of over 100% to consensus target estimates.

Payfare stock

Another Canadian company supporting the gig economy is Payfare (TSX:PAY). But unlike Thinkific, Payfare is expected to report adjusted earnings of $0.35 per share in 2023, indicating a forward price-to-earnings multiple of 15 times, which is very reasonable.

In Q1 of 2023, Payfare reported sales of $42.3 million, an increase of 76% year over year. It remains on track to end the year with sales between $185 million and $195 million.

Payfare has already onboarded 1.12 million active users, up 62% year over year, allowing the company to report a gross dollar value of $2.7 billion in Q1 compared to $1.2 billion in the year-ago period. Due to expanding profit margins, Payfare also increased free cash flow by a stellar 560% in Q1.

Down 61% from all-time highs, Payfare stock is priced at a discount of 134% to consensus price target estimates.

Pet Valu stock

The final growth stock on my list is Pet Valu (TSX:PET), one of the largest pet retailers in Canada. Valued at a market cap of $2.2 billion, Pet Valu is forecast to increase sales from $952 million in 2022 to $1.17 billion in 2024.

The company expects to open between 40 and 50 new stores in 2023 and is optimistic of increasing same-store sales by at least 7% this year. Pet Valu also pays shareholders an annual dividend of $0.40 per share, indicating a forward yield of 1.3%.

It’s currently trading at a discount of almost 40% to Bay Street’s price target estimates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Goldman Sachs Group and Pet Valu. The Motley Fool has a disclosure policy.

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