The TSX stock market has been strong in 2024. Many beaten-down stocks in 2023 have had strong recoveries into the new year.
Likewise, most of Canada’s well-known growth stocks have already appreciated to at least fair-value pricing levels. However, if you are willing to look a little deeper, there are still some diamonds in the rough. Here are three growth stocks that still look incredibly cheap today.
Enghouse: A stalled-out growth stock with potential for upside
Enghouse Systems (TSX: ENGH) has not been a pretty stock over the past five years. It delivered a -2 % stock return in that time.
Add in dividends, and its total returns get closer to 10%. That is a pretty lacklustre performance for what was once one of Canada’s best growth stocks (from 2007 to 2017, it delivered a 700% return).
Part of the reason is the company is in a bit of a turnaround phase. The pandemic was a major boon for its communications software business. However, demand for those services has drastically pulled back.
Yet, the company sits with an exceptional net cash balance of nearly $250 million of cash. It has been deploying its ample cash into smaller tuck-in acquisitions.
However, it is time it deploys a nice chunk of that cash into a larger business. It has a great record of a +15% internal rate of return on acquisitions. If it can do this in a large merger, it could be very accretive to shareholders.
Right now, Enghouse is trading with an enterprise value-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 16 times. That is near the low end of its five- and 10-year range. If this Enghouse can start growing consistently again, this growth stock’s multiple could easily re-rate back to its 19-20 times mean range.
Propel: Cheap if it can keep growing
If you want to own a fast-growing stock that also trades at a cheap valuation, you may want to look at Propel Holdings (TSX: PRL). It has a $583 million market cap today.
Propel utilizes a proprietary, artificial intelligence-powered lending platform to provide non-prime consumer loans through 30 states/provinces in Canada and the U.S.
It works through partner financial institutions. However, it also has its own online lending platform. Since 2019, the company has grown earnings per share and EBITDA by a 75% compounded annual growth rate (CAGR). Analysts believe its elevated growth rate could continue into 2024.
This growth stock is up 37% this year. Yet, if it can hit its growth targets, its valuation of 10 times earnings still looks attractive. This is a volatile stock, so investors need to be prepared for that.
Calian: A bargain growth stock if it hits its 2024 numbers
A final growth stock that looks relatively cheap is Calian Group (TSX: CGY). Like the stocks above, this stock is not discussed that much by analysts or the financial media. Yet, the company has delivered solid growth over the past five years. Revenues and EBITDA are up by respective CAGRs of 17% and 21%, respectively.
Calian provides a mix of services in healthcare, training, specialty technologies (like satcom), and cybersecurity. It has a big mix of reliable government customers, but it has also been expanding its services to the private market.
After some big acquisitions in 2023, the company expects to grow revenues and EBITDA by 15% and 30%, respectively. The market hasn’t acknowledged this potential. That could make this growth stock an attractive buy. With an enterprise value-to-EBITDA ratio of 11, it is trading far below its five-year average of 13.6.
