The equity market bounced back over the past year as fear of recession diminished and inflation cooled down. Further, the expected decline in interest rates acted as a catalyst, driving investors’ risk appetite.
While most Canadian stocks recovered from their lows, shares of a few fundamentally strong companies are still trading at attractive discounts. This provides an opportunity for buying the dip and benefitting from the recovery of their prices.
Against this background, let’s look at two stocks to buy today and hold for the next five years.
Aritzia
Aritzia (TSX: ATZ) stock dipped about 18% in one year. Macro headwinds took a toll on consumer spending, tough year-over-year comparisons, and failure to offer newness adversely impacted its growth rate and share price. However, the Aritzia stock has started to recover from its low and has recovered a portion of its lost ground.
Notably, shares of this luxury fashion house are likely to benefit from the reacceleration in its growth rate. Aritzia’s revenue and earnings will likely gain from opening new boutiques. It’s worth highlighting that its new boutiques are performing exceptionally well and have lower payback periods, which are positives and support my optimistic outlook.
Besides the expansion of its boutiques, the company’s ongoing focus on omnichannel offerings, strengthening of its e-commerce business, and growing the visibility of its brand augur well for growth.
Further, Aritzia’s focus on bringing new styles and opening its new distribution facility will cushion its top and bottom lines.
Overall, Aritzia’s sales and profitability could continue to gain from its continuous real estate expansion, omnichannel offerings, efficiency improvement, and expense management. It expects its top line to grow at a compound annualized growth rate (CAGR) of 15-17% through 2027, implying a reacceleration in growth rate from current levels. Moreover, its bottom line could improve faster than sales, supporting the uptrend in its share price in the coming years.
Lightspeed
Lightspeed (TSX: LSPD) stock reversed course and fell nearly 37% year to date. The significant dip in Lightspeed stock followed its leadership’s cautious near-term outlook during the third-quarter (Q3) conference call. Notably, the commerce-enabling company’s management remains cautious about the uncertain macroeconomic environment and the adoption of its unified payments, primarily in the international markets.
Despite macro headwinds, Lightspeed’s fundamentals remain strong. It continues to grow its revenue at a solid pace, driven by higher gross transaction volume (GTV) and increasing customer locations. Further, the change in its go-to-market strategy is driving its average revenue per user (ARPU) and positions it well to deliver sustainable earnings growth in the coming years.
Investors should note that Lightspeed has consistently delivered positive adjusted earnings before interest, tax, depreciation, and amortization for two consecutive quarters. Further, its focus on customers with higher gross transaction volume suggests that its ARPU could continue to improve, supporting its profitability.
Lightspeed’s shift towards high GTV customers lowers the churn and drives ARPU as these customers can adopt its multiple modules. Notably, Lightspeed’s customer Locations with GTV exceeding $500,000/year and $1 million/year marked a 7% growth in the third quarter. Besides growing organically, Lightspeed’s strategic acquisitions will likely boost its customer locations and overall growth rate.
Given the recent pullback, Lightspeed stock is trading at a discounted valuation, providing a good entry point near the current levels.
