Growth stocks across sectors are trading at a lower multiple in 2023, as investors remain worried about a sluggish macro environment, rising interest rates, tepid consumer spending, and elevated inflation.
The threat of an economic recession is bound to impact revenue growth and profit margins of growth stocks in the near term, which has accelerated the selloff in recent months. However, it also provides investors an opportunity to buy the dip and gain exposure to quality growth stocks at a discount.
Here are two such TSX growth stocks you can buy today and benefit from outsized gains in 2023 and beyond.
Element Fleet Management stock
Element Fleet Management (TSX: EFN) is the largest pure-play automotive fleet manager globally. Valued at a market cap of $7.7 billion, the company has increased revenue from $1.77 billion in 2020 to $2.24 billion in the last 12 months.
EFN ended the second quarter (Q2) of 2023 with record sales of $323 million, an increase of 12% year over year. Its free cash flow per share also rose $0.46, up from $0.35 in the year-ago period. Element Fleet pays shareholders a quarterly dividend of $0.10 per share, which indicates its payout ratio is well below 30%.
The company estimates long-term revenue growth to range between 6% and 8%, allowing it to improve its operating margin by 50 basis points each year and experience double-digit growth in earnings and free cash flow per share.
Priced at 15.4 times forward earnings, EFN stock is quite cheap, given its forecast to increase adjusted earnings per share by 16.4% annually in 2023 and 2024. Analysts remain bullish on EFN stock and expect shares to surge by 25% in the next 12 months.
GFL Environmental stock
An Ontario-based company, GFL Environmental (TSX: GFL) is the fourth-largest environmental services company in North America. It provides solutions such as solid waste management, liquid waste management, and soil remediation services in Canada and the U.S.
In Q2 of 2023, GFL executed the process to rationalize its non-core assets. It sold three non-core assets located in the U.S., which were part of a larger acquisition for gross proceeds of $1.6 billion, using the proceeds to lower balance sheet debt.
GFL emphasized it’s on track to realize a run-rate EBITDA (earnings before interest, tax, depreciation, and amortization) growth of 10% year over year while lowering balance sheet debt by $1.4 billion in 2023.
After accounting for the divestitures, GFL forecasts revenue at $7.4 billion in 2023 with an adjusted EBITDA of $2 billion, indicating a margin of 27%. Comparatively, its free cash flow is forecast at $705 million for the year.
GFL pays shareholders an annual dividend of $0.07 per share, indicating a yield of just 0.16%. But with a payout ratio of less than 5%, it has enough room to increase these payouts by a significant margin going forward.
Analysts tracking GFL stock expect its adjusted earnings to expand from $0.49 per share in 2022 to $1.23 per share in 2024. Priced at 36 times forward earnings, GFL stock might seem expensive. But it trades at a discount of 12% to consensus price target estimates.
