The resilient economy, moderating inflation, and an expected decline in interest rates have pushed Canadian stocks higher. Despite the appreciation in value, you can buy shares of several fundamentally strong companies right now before they surge even higher.
With this backdrop, let’s look at three growth stocks with the potential to deliver above-average returns in the long term.
Aritzia
Aritzia (TSX:ATZ) stock has gained over 56% in three months. Despite the substantial increase in value, shares of the luxury apparel design house could rise further on the back of its square footage expansion (opening of new boutiques), omnichannel offerings, and introduction of new styles.
The company has 51 boutiques in the U.S. and plans to open approximately 8 to 10 new boutiques annually through FY27. Aritzia’s boutiques will likely significantly boost its top line and profitability as these new locations are projected to achieve breakeven ahead of the company’s expectations. Besides growing its real estate, Aritzia is improving its online customer experiences, testing new omnichannel services, such as shipping from stores, and offering buying online and pickup from stores.
It’s worth highlighting that in the last five years, Aritzia has doubled its style count, grown its product catalog, and expanded into menswear with the acquisition of Reigning Champ. While the company is taking measures to accelerate revenue growth, lower inventory management costs and operating efficiencies will cushion its earnings. Overall, Aritzia is poised to deliver strong growth, supporting the uptrend in its share price.
Dollarama
Dollarama (TSX:DOL) stock has consistently delivered above-average returns. The stock has grown over 28% in one year. Moreover, it has increased at a CAGR (compound annual growth rate) of more than 23% in the last five years. The company delivered stellar returns, while operating a defensive business that is growing rapidly.
Dollarama sells products at low and fixed points, which makes it a top destination for value-driven shoppers in all market conditions. Notably, this retailer’s revenue and earnings have grown at a CAGR of 10% and 16%, respectively, since fiscal 2011 (FY11). Moreover, it has consistently enhanced its shareholders’ returns through increased dividend payments.
The company’s value pricing, extensive store base, direct product sourcing, and focus on reducing merchandise costs will likely boost its sales and earnings. This will enable DOL stock to offer higher dividend payments and could push its share price higher.
goeasy
goeasy (TSX:GSY) stock appreciated nearly 32% in one year. Further, shares of this subprime lender have grown at a CAGR of over 36% in the past five years, gaining nearly 367% during that period. While goeasy stock has delivered stellar returns, it remains on track to generate solid revenue and earnings, supporting its share price and future dividend payments.
goeasy could continue to benefit from its diversified revenue sources, omnichannel offerings, and a large subprime lending market, which will drive its consumer loan portfolio and overall sales. Meanwhile, its steady credit performance and operating efficiency will cushion its bottom line.
Notably, goeasy is a Dividend Aristocrat and has increased its dividend for nine consecutive years. Given its solid top and bottom line growth, the company could continue to return significant cash to its shareholders in the coming years.
