Amid the hope of the central banks slashing their benchmark interest rates and inflation showing signs of easing, the Canadian equity markets bounced back strongly in the fourth quarter. The S&P/TSX Composite Index rose 7.3% during the period. Despite the strong recovery, few Canadian growth stocks are still trading at attractive valuations, making them excellent buys. Meanwhile, here are three cheap growth stocks that I am bullish on.
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Lightspeed Commerce
Lightspeed Commerce (TSX: LSPD) offers small- and medium-scale enterprises omnichannel solutions to scale their businesses. Amid the improvement in investor sentiments and its solid second-quarter earnings for fiscal 2024, the company’s stock price rose over 45% in the fourth quarter of 2023. Despite its recent increase, the company is still trading at around 85% discount compared to its 2021 highs. It trades at next-12-month (NTM) price-to-sales and price-to-book multiples of 2.8 and 1.2, respectively.
The launch of its Unified Payments, which embeds its payment solutions directly into POS (point of sale), has resonated with its customers, thus driving its financials. Further, the Montreal-based commerce company has launched new products and artificial intelligence-powered tools to meet the changing needs of its customers. The company could also benefit from the customers’ shift to higher GTV (gross transaction value) locations. Along with top-line growth, the company focuses on improving its profitability. Amid these initiatives, it posted a positive EBITDA (earnings before interest, tax, depreciation, and amortization) for the first time during the September-ending quarter.
Meanwhile, the growing transition towards omnichannel selling has created long-term growth potential. Considering its growth prospects, improving profitability, and attractive valuation, I believe Lightspeed Commerce would be an excellent buy.
WELL Health Technologies
On Monday, CIBC downgraded WELL Health Technologies (TSX: WELL) from “outperform” to “neutral” and also lowered its target price from $5.50 to $4.75. Scott Fletcher of CIBC stated that WELL Health’s margins were under pressure last year and expect the same this year, thus leading to a decline in its EBITDA growth. Amid the downgrade, WELL Health lost over 13% of its stock value on Monday. As of Monday’s closing price, it trades at around 60% lower than its 2021 highs. Its valuation also looks cheaper, with its NTM price-to-sales and price-to-book multiple at one and 1.2, respectively.
Meanwhile, WELL Health has undertaken several cost-optimization initiatives, which can improve its cost efficiency and cash flows. Further, the digitization of clinical procedures and growing adoption of telehealthcare services have created a multi-year growth potential for the company. Additionally, the new product launches and artificial intelligence-powered tools could help drive its financials. Given its discounted stock price, expanding addressable market, and growth initiatives, I am bullish on WELL Health Technologies.
Magna International
Another growth stock I am bullish on is Magna International (TSX: MG), a Canadian automotive parts manufacturer. It has been under pressure over the last few years due to microchip shortage, inflation, COVID-induced restrictions, and higher European energy costs. Amid the weakness, the company has lost over 40% of its stock value compared to its 2021 highs. The selloff has dragged its valuation down, with its NTM price-to-sales multiple at 0.4.
Meanwhile, the automotive industry is witnessing a rapid transition amid the growing interest in electric and autonomous vehicles. So, the Ontario-based automotive company is aggressively investing in powertrain electrification, battery enclosures, and active safety. The segments could grow at 35%, 75%, and 45% amid these investments. Further, the company is accelerating automation and adopting smart manufacturing procedures, which could improve its productivity and drive profitability. So, Magna International would be an excellent buy at these levels.
