A growth stock, a recovering giant, and a steady riser lead the TSX’s large-cap gainers in 2023. Let’s take a closer look.
Shopify: Top TSX stock in strong rebound
Canadian e-commerce giant Shopify (TSX:SHOP) pulled off a strong recovery in 2023 to reclaim its position as the third-largest TSX stock by market capitalization this year. Shopify stock price has more than doubled so far in 2023. The top growth stock’s strong 120% gain to reach a $125 billion market cap leads the top-performing charts for large-cap Canadian stocks by a wide margin.
Why did Shopify stock rise sharply in 2023? An aggressive cost-cutting strategy reduced the company’s workforce by 20%, lowered operating costs, and helped return the business to sustainable operating cash flow generation. An exit from a loss-leading logistics business line also created a leaner and more cost-efficient Shopify. The strong demand for the firm’s software made Shopify’s operating model shine brighter.
Can Shopify keep growing? The company recently reported a 25% year-over-year growth in third-quarter revenue and four consecutive quarters of positive free cash flow growth. If the recent 24% year-over-year surge in Shopify merchant’s Black Friday-Cyber Monday sales to a record US$9.3 billion is any indication of its platforms’ sustained market success, then Shopify could still report impressive, if not better, positive revenue, earnings and cash flow growth rates in the coming years.
A potential limiting factor for sustained growth in Shopify’s stock price could be its steep valuation. Shopify’s price-to-sales multiple of 15.1 is more than double the industry average of 6.4 in North America. That said, winners will (most likely) always be winners.
Cameco stock in 82% gain for 2023
Up 85% so far this year, and with only two trading sessions remaining in 2023, uranium miner and nuclear industry giant Cameco (TSX:CCO) stock features among the top-performing TSX stocks this year. Uranium prices have finally broken out, and Cameco is restarting production at mothballed sites.
Low-cost producers and market-leading incumbents in the uranium and nuclear fuel industry, including Cameco, stand to benefit from vastly improving production economics — more than a decade after the Fukushima nuclear disaster that killed the demand for uranium.
Countries in Europe and Asia are warming up to nuclear as a clean energy source. Subsequent to geopolitical tensions, the pressure on North American and European political systems to decouple their energy sources from Russian supply chains positions Cameco as a preferred uranium contractor of choice for the allied countries. This year, Cameco saw strong contracting activity at premium rates for long-term uranium deliveries, revenue has grown impressively, cash flow is beautiful once again, and the company’s market value has rallied higher.
Can Cameco stock continue to rise? Sustained growth in nuclear reactors coming online is a positive demand growth indicator. Production restarts should unlock cash flow generation growth at Cameco, and if the rally in uranium prices has more legs, the company’s stock price could rise further in 2024, as traders bid the nuclear stock higher.
Stantec stock steadily rises to all-time highs
Stantec (TSX:STN) stock’s 62% rally to all-time highs so far in 2023 could make it the third-best-performing TSX large-cap listing this year. The $12 billion company is an engineering design and built-environment consulting firm that has won more business, as demand from Canada and the United States soared in 2023.
The company’s record third-quarter revenue of $1.3 billion was 13.5% higher year over year. Organic growth was impressive at 9%, and acquisitions added 2.3% to sales growth during the most recent quarter. Most noteworthy, revenue for the first nine months of the year rose 15%, and Stantec’s net income margin expanded to 6.7% of sales, up from 5.2% in 2022. The business earned more per each dollar of sales than it did last year.
A 7.6% growth in Stantec’s revenue backlog to $6.4 billion looks promising. Shares could continue to rise as the business wins contracts across all geographic segments. If the company can deliver on a 15% earnings per share growth rate anticipated by Bay Street analysts over the next five years.
Most valuation multiples on Stantec stock have soared above industry averages. However, shares trade at a price-to-free cash flow multiple of 30.6, which looks reasonable compared to an industry average of 33.7.
