Growth stocks are ideal long-term investments because they can compound at high rates of return. However, it is crucial to look for stocks that are not only growing revenues quickly, but also consistently growing earnings and free cash flow per share.
When you are thinking of stocks to own forever, you want stocks that have great balance sheets, strong products/services, a large market (or variety of niche markets), a management team focused on wise capital allocation, and a reliable track record of business execution. Here are three top Canadian growth stocks that fit these criteria.
A top software consolidator
Constellation Software (TSX:CSU) is a good contender for a stock to buy and hold forever. While this business is valued at $57 billion today, it still has a long runway for growth ahead.
Constellation consolidates specialized software businesses around the globe. It has close to 1,000 businesses in its portfolio, but its addressable acquisition market is nearly 40 times that size.
The software behemoth’s unique acquisition and operational strategies have helped deliver compounded earnings growth of just over 20% in the past five years. In that time, its stock has delivered 26% compounded annual growth (212%).
The company has an exceptional group of managers, a low risk mix of essential assets, and plenty of businesses to add to its mix. If you are looking for some smaller mini-Constellation stocks, you may want to also consider its recent spinouts: Topicus.com or Lumine Group.
A logistics stock with a large growth runway
Another software stock with a great track record is Descartes Systems (TSX:DSG). While Descartes has grown by a smart acquisitions strategy (like Constellation), its focus is largely on the transportation sector.
Descartes operates the world’s largest logistics network. It compliments this with a breadth of applications and software services that help streamline logistics and transportation processes.
This growth stock has compounded earnings and cash flow per share by a respective 16.5% and 22.7% annual growth rate since 2018. In that time, DSG is up 150% (a 20.5% compounded annual rate).
The company is loaded with cash (and no debt). Software company valuations have fallen, so the next few years could be a perfect opportunity for it to acquire businesses and expand its essential logistics platform.
A top global consulting company
WSP Global (TSX:WSP) is another growth stock to consider for a long-term hold. Many may not know it, but WSP is one of the largest consulting, engineering, design, and project management businesses in the world.
Over its lifetime, WSP has consolidated nearly 200 firms into its portfolio. Recently, the company made several large acquisitions that drastically expanded its environmental expertise. WSP has grown earnings per share by around 19% per year since 2018. Its stock is up 187% in that time. That is a 23.9% compounded annual rate.
As the company gets larger, it also gets better. The engineering consultant can integrate its diverse expertise into larger and more complex projects. A broader move into consulting and business strategy could present another leg of growth as well.
This Quebec-based company has a very thoughtful management team, diverse geographic and sector exposure, and a foreseeable growth plan. While it is not a typical “techy” growth stock, it is growing and should continue to deliver solid returns into the future.