While index investing is among the most popular ways to build long-term wealth, you can consider allocating a small portion of your equity portfolio toward individual growth stocks. In the last two years, growth stocks across sectors have fallen off a cliff and trade at a massive discount compared to historical valuations and consensus price target estimates.
Typically, growth stocks trail the broader indices by a wide margin during bear markets and generate outsized gains when market sentiment improves. As timing the market is impossible, every major valuation dip should be viewed as a buying opportunity by long-term investors.
Here are three top TSX growth stocks you can consider buying in December 2023.
Lightspeed stock
Down 86% from all-time highs, Lightspeed Commerce (TSX: LSPD) is valued at $3.4 billion by market cap. It offers cloud-based software subscriptions and payment solutions for small and medium businesses such as retailers, restaurants, and golf course operators.
Despite an uncertain macro environment, Lightspeed increased revenue by 25% year over year in the second quarter (Q2) of fiscal 2024 (ending in March). The company emphasized its flagship retail and restaurant offering gained significant traction among customers and accounts for a third of customer locations.
Its GPV (gross payment volume) also rose to US$5.9 billion, with 25% processed through Lightspeed Payments. Lightspeed reported its first quarter of positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and is on track to break even through fiscal 2024.
Kinaxis stock
Valued at $4.3 billion by market cap, Kinaxis (TSX: KXS) offers tech-powered supply chain solutions to enterprises. It ended Q3 of 2023 with annual recurring revenue or ARR of $304 million, an increase of 18% year over year.
Kinaxis explained the demand for its products and progress on several early-stage growth strategies allow it to make strategic investments in go-to-market activities.
It expects to end 2023 with sales between $425 million and $435 million, while EBITDA margin is forecast at 17% at the midpoint.
Down 34% from all-time highs, KXS stock is priced at 54 times forward earnings, which is quite expensive. But analysts remain bullish and expect shares to surge by more than 60% in the next 12 months.
Descartes stock
The final TSX growth stock on my list is Descartes Systems (TSX: DSG), another cloud-based logistics and supply chain solutions company. Its Logistics Technology platform offers a range of wireless logistics management solutions that include routing, mobile, and telematics, in addition to transportation management, e-commerce shipping, and fulfillment.
Descartes has a subscription-based business model, allowing it to generate stable cash flows across business cycles. Moreover, its profit margins are over 20%, which suggests Descartes consistently generates close to $200 million in cash flows each year.
Descartes ended the last quarter with a net cash balance of $227 million, providing it with the flexibility to target accretive acquisitions and accelerate top-line growth.
Unlike most other tech stocks, Descartes is trading close to its record highs. It has returned over 650% to shareholders in the past decade, easily outpacing the broader index.
Priced at 60 times forward earnings, DSG stock is quite expensive. But a quality growth stock commands a premium multiple.
