The Canadian construction industry, with its constant demand for infrastructure and development, presents hidden gems for long-term investors. One such gem might be Stantec (TSX:STN), a $13.1 billion growth stock that has already delivered impressive returns and has the potential to continue minting millionaires as it executes its 2024 to 2026 strategic plan.
Stantec is a construction engineering design and project management company based in Alberta, Canada. The company generates most of its revenue from North America. Since going public 30 years ago in 1994, it has strategically expanded its footprint beyond North American borders through accretive acquisitions. The results have been phenomenal — sparking a parabolic rally in Stantec stock since the pandemic.
The construction stock delivered steady capital gains to its early investors, and given a few more years, with management following through on a laid-down growth strategy, STN stock could make more millionaires this decade.
Stantec: A millionaire-maker stock hiding in plain sight
If you had invested $10,000 in Stantec stock 30 years ago at its initial public offering in 1994, you could have more than $3.9 million in your retirement plan account today. Reinvesting the stock’s dividends could have grown your position to $4.6 million. A $10,000 investment in Stantec stock could have made one a multi-millionaire today.
Stantec stock generated more than 4,300% in capital gains since going public. Shares have gone parabolic since 2020 and returned 280% in total returns during the past five years.
What’s driving the rally?
The company has been releasing record financial results for some time. Just this past year, Stantec generated record net revenue of $5.1 billion, a 13.7% growth year over year. Earnings margins expanded, and its adjusted diluted earnings per share (EPS) increased by 17.3% to $3.67 per share for 2023.
The business’s growth rate has exceeded management expectations. Management raised its full-year guidance for 2023 at least twice during the year.
The business is increasingly profitable. It’s generating more earnings per dollar of new revenue as operating leverage works in its favour. Stantec has grown organically and through accretive acquisitions. It grew its revenue at a compound annual growth rate (CAGR) of 10.1% from 2018, and operating profits have averaged a CAGR of 17.1% since then.
Can the stock rally higher?
Organic growth and accretive acquisitions could sustain Stantec stock’s rally over the next three years, making more millionaires.
Stantec’s acquisitions-led growth strategy remains in full swing. Acquisitions should combine with significant organic growth opportunities as the United States rebuilds its infrastructure while North America brings manufacturing and industrial production back within its borders following COVID-19 supply-chain bottlenecks and geopolitical fallouts with China.
In a recent full-year 2023 financial results announcement, the company’s chief executive officer Gord Johnston said “Stantec continues to fire on all cylinders, delivering yet another year of record financial results.” And he was correct. The company organically grew revenue by 9.9%, and acquisitions added 1.5% to its annual sales growth last year. Its revenue backlog rose by 6.8%, and management raised Stantec’s revenue growth outlook for 2024 from a 7-12% range to 11-15%.
In a 2024-2026 strategic plan released in December 2023, Stantec plans to grow its revenue at a CAGR of 7% to $7.5 billion by 2026 and grow its diluted earnings per share at more than double its revenue growth rate, targeting a 15-18% growth in earnings annually. The company is increasingly more profitable, and it’s sharing the proceeds with investors following a 7.7% dividend raise for 2024.
Although the dividend, which yields under 0.8% annually, doesn’t count for much these days, it is a testament to the company’s growing earnings and cash flow stability, two qualities that attract investors’ attention. Shares currently trade at a forward price-to-earnings (P/E) multiple of 26.9, which looks pricey considering an average industry P/E of 17.1. But valuable gems usually fetch premium prices.
Stantec stock could continue its steady rise over the next three years to 2026, minting new millionaire investors in the process.
