2 Undervalued Growth Stocks to Buy Before 2023 Ends

These two undervalued Canadian growth stocks have the potential to yield outstanding returns in the long run.

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As the Canadian stock market recovery is gaining steam, investors are now keenly searching for growth stocks that look cheap but have the potential to yield strong returns in the long run. These undervalued stocks, usually overlooked during the market’s turbulent times, now look like attractive opportunities for those looking to invest before the year ends.

In this article, I’ll highlight two such cheap-looking growth stocks you can consider buying on the dip in December 2023.

Aritzia stock

Aritzia (TSX:ATZ) is one of the most beaten-down growth stocks in Canada right now, which I find really attractive to buy on the dip and hold for the long term. This Vancouver-headquartered apparel designer and retailer currently has a market cap of $2.8 billion, as its stock trades at $25.07 per share after witnessing around 47% value erosion in 2023 so far, making it look way too undervalued based on its long-term fundamentals.

In general, for a company that’s growing fast, how much sales it makes from selling things or services is more important than its profits. This is because bringing in a lot of money in revenue shows that the business is doing well and attracting customers, even if it’s not making a lot of profit yet. On that front, Aritzia won’t disappoint you. Even as the challenging macroeconomic scenario due to high inflation and rising interest rates has affected its profitability, the company continues to post positive sales growth. In the first half of its fiscal year 2024 (ended in August), Aritzia’s sales rose 6.8% YoY (year over year) to $996.9 million.

While weak consumer spending may continue to affect Aritzia’s financials in the near term, its consistently expanding presence in the United States, growing e-commerce business, and expected improvements in the economic outlook could help it post notable advances in the coming years.

Dye & Durham stock

Dye & Durham (TSX:DND) is another cheap growth stock you may consider buying before 2023 ends. This Toronto-headquartered company mainly focuses on providing cloud-based software and other technological solutions to improve the efficiency of legal and business professionals. It currently has a market cap of about $ 817 million, as its stock trades at $14.85 per share after sliding by 9.5% year to date.

In its fiscal year 2023 (ended in June), Dye & Durham’s revenue dived 5% YoY to $451.1 million. Just like in the case of Aritzia, challenging macroeconomic conditions and high inflation hurt DND’s profits last fiscal year by lowering transaction volumes of the real estate industry. Nonetheless, as easing inflationary pressures encourage central banks to slash interest rates in the coming quarters, which eventually leads to better economic growth, the demand for its services could witness a notable recovery.

In another key development, Dye & Durham recently announced a strategic review of its non-core assets to accelerate its deleveraging plan. Options being considered under this review include the potential sale of parts or all of its non-core assets, including its financial services business. I expect this move to help the company strengthen its balance sheet. Given all these factors, DND stock could be worth considering to hold for the long term.

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.

The Motley Fool has positions in and recommends Aritzia. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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