The signs of inflation cooling down and the Federal Reserve’s decision to maintain its benchmark interest rates unchanged have improved investors’ confidence, thus driving the Canadian equity market higher this month. The S&P/TSX Composite Index has risen by 7.3%. Amid improving investors’ sentiments, the following three Canadian stocks can deliver superior returns.
Shopify
Shopify (TSX:SHOP) trades over 45% higher this month amid its solid third-quarter performance and improving investors’ sentiments. The company’s revenue came in at $1.71 billion for the quarter, beating analysts’ expectations of $1.67 billion. Year over year, its top line grew by 25% amid the growth in both the subscription and merchant solutions segments. The company sold $56.2 billion of the total merchandise volume on its platform during the quarter — a 22% year-over-year growth.
Along with toppling growth, the global commerce company’s EPS (earnings per share) came in at $0.55 compared to a loss of $0.12 in the previous year’s quarter. However, removing special items, its adjusted EPS stood at $0.24, higher than analysts’ expectations of $0.14. Amid its focus on cutting costs, the company slashed 20% of its workforce in May and sold its logistics unit to Flexpo, expanding its margins and driving earnings growth.
Further, Shopify’s management expects its revenue to grow in the high teens during the fourth quarter, translating its full-year revenue growth at a mid-20s percentage rate. The management is projecting its gross margins to expand by 300-400 basis points this quarter, primarily due to the sale of its logistics business. Also, the uptrend in its free cash flows could continue. Considering its healthy growth prospects, I believe the uptrend in Shopify will continue.
goeasy
My second pick is goeasy (TSX:GSY). This month, it reported its third-quarter earnings with record loan originations of $722 million, a 13% year-over-year increase. Higher demand across its products and acquisition channels drove loan originations, thus expanding its loan portfolio to $3.43 billion — a 33% increase from the previous year. Amid stable credit and payment performance, the company’s net charge-off rate declined to 8.8%, closer to the lower end of the company’s guidance of 8.5-9.5%. Also, the allowance for its future credit losses declined from 7.42% in the previous quarter to 7.37%.
Amid these solid operational performances, the company’s revenue and adjusted EPS grew by 22.7% and 29%, respectively. Its operating margin also expanded from 34.8% to 39.3%. Further, the company reaffirmed its three-year forecast. Despite its solid third-quarter performance and healthy growth prospects, the company trades at an attractive NTM (next 12-month) price-to-earnings multiple of 7.9, making it an excellent buy. Also, it offers a forward dividend yield of 2.98%.
Telus
I have picked Telus (TSX:T), a prominent telecom player in the Canadian market, as my third pick. It had a record new customer additions of 406,000 during the September-ending quarter, 59,000 more than last year. Meanwhile, its operating revenue and adjusted earnings before interest, taxes, depreciation, and amortization grew by 7.2% and 5.5%, respectively. The acquisition of LifeWorks and WillowTree, subscriber growth, and higher revenue per customer drove its financials.
Meanwhile, I expect the uptrend in the company’s financials to continue amid the growing demand for telecommunication services in this digitally connected world and the continued expansion of its 5G and broadband infrastructure. Further, the telco has rewarded its shareholders by raising its dividend 25 times since May 2011. Its forward yield stands at a juicy 6.01%. Also, the company’s management is confident of increasing its dividends at an annualized rate of 7-10% from 2023 to 2025. So, I believe Telus would be an excellent buy right now.
