Growth stocks will have the potential to grow their financials at a superior rate than the industry average, thus offering higher return potential. However, these companies are riskier due to the higher capital requirement to fund their growth initiatives. Also, these companies trade at higher valuations. So, these stocks are ideal for investors with higher risk-tolerance abilities.
Here are my three picks that can deliver superior returns in the long run.
Supported by its solid third-quarter performance and improvement in broader equity markets, Nuvei (TSX:NVEI) has witnessed solid buying since the beginning of October. The company’s stock price has increased by around 55% during this period. Despite the surge, the company trades at over 82% discount compared to its all-time high. Its valuation looks reasonable, with its NTM (next 12-month) price-to-sales at 2.4 and price-to-book multiple at 1.6.
Meanwhile, digital payments are becoming popular amid growth in online shopping, thus expanding the addressable market for Nuvei. Further, the fintech company is also forging new partnerships, expanding its APM (alternative payment method) portfolio, and introducing new products and features, which could boost its financials in the coming years. Amid its growth initiatives, the company’s management expects an annual revenue growth of 15-20% in the coming years. The management is confident of improving its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin to over 50% in the long run.
Given its growth prospects and attractive valuation, I expect Nuvei to deliver superior returns in the long run.
Second on my list is Magna International (TSX:MG), a Canadian automotive parts manufacturer. The automotive industry is transforming rapidly amid the growing interest in electric vehicles. Amid the changing industry dynamics, Magna is investing aggressively in high-growth segments, such as powertrain electrification, battery enclosures, and active safety. The company’s management expects these segments to grow at a CAGR (compound annual growth rate) of 35%, 75%, and 45% through 2027, respectively.
Further, its new mobility sales could contribute around $300 million to its revenue by 2027. Apart from its topline growth, the company’s management also focuses on improving its profitability. It is accelerating automation, improving productivity, and adopting smart manufacturing procedures, which could improve its margins by 150 basis points by 2025. Further, the company’s NTM price-to-earnings multiple stands at 8.8, making it an attractive buy.
WELL Health Technologies
My final pick is WELL Health Technologies (TSX:WELL), which develops technologies and services to support healthcare professionals to enhance patient experience. It operates 180 clinics and 98 facilities across Canada. The company has been under pressure since reporting its third-quarter earnings in November. The increase in its net losses weighed on its stock price.
However, yesterday, the company announced a cost-optimization initiative, which could improve its cost efficiency and operating cash flows. Further, it has signed agreements to acquire 13 clinics through the absorption program and around 30 clinics through mergers and acquisitions. Amid these growth initiatives, the company’s management is confident of posting revenue of $900 million this year, representing an 18% growth from the midpoint of its 2023 guidance. So, its outlook looks healthy.
Despite its healthier outlook, WELL Health trades at 1.1 times its projected sales for the next four quarters. Given its healthier outlook and attractive valuation, I am bullish on WELL Health.