2 TFSA Stock Picks With Explosive Potential

These fundamentally strong Canadian companies are likely to deliver stellar tax-free capital gains in the long term.

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Tax-Free Savings Account (TFSA) is a popular investment tool that provides tax-efficient opportunities for long-term wealth creation. Since all income generated within a TFSA – be it from interest, dividends, or capital gains – is exempt from taxation, it allows money to grow faster and significantly boosts overall returns, especially in the long term. 

Against this background, let’s look at two Canadian stocks with explosive growth potential in the long term. These fundamentally strong Canadian companies will likely deliver solid sales and earnings growth in the upcoming years, which will drive the share price higher. 

TFSA stock #1 

Speaking of explosive growth stocks, goeasy (TSX:GSY) tops my mind, and there are good reasons behind its performance. For instance, this subprime lender has consistently grown its top and bottom lines at a solid double-digit rate. Thanks to its stellar growth, goeasy stock has generated significant capital gains for its shareholders and outperformed the broader equity market by a wide margin. 

The company specializes in providing secured and unsecured loans to non-prime customers. Between 2012 and 2022, goeasy’s sales and earnings per share (EPS) grew at a compound annual growth rate (CAGR) of 17.7% and 29.5%, respectively. Furthermore, the lender’s top- and bottom-line growth rates have accelerated in recent years. Over the past five years leading up to December 31, 2023, revenue grew at a CAGR of 19.8%, while its EPS soared at an exceptional CAGR of 31.9%.

Benefitting from its robust financial performance, goeasy stock has generated impressive returns over the past decade, boasting a compelling CAGR of over 28.5% and generating a remarkable return of more than 1,131%. Furthermore, with the acceleration of its growth rate, GSY has experienced an even more remarkable CAGR of 33.4% in the past five years, resulting in substantial capital gains of approximately 324%. In addition, it enhanced its shareholders’ return via increased dividend payments. 

Looking ahead, goeasy’s omnichannel offerings, geographic expansion, diversified funding sources, a large addressable market, solid underwriting capabilities, and efficiency improvements will drive its top and bottom lines at a solid pace. This would support the uptrend in goeasy stock and cover its dividend payouts. 

TFSA stock #2

Aritzia (TSX:ATZ) stock is a promising choice for TFSA investors seeking solid capital gains in the long term. This luxury apparel design house’s revenue grew at a CAGR of 22% between fiscal 2016 and 2023. Concurrently, its adjusted net income saw an even more remarkable CAGR of 27% during the same period.

Aritzia stock came under pressure last year due to the moderation in its growth rate. Despite the notable correction in its price, ATZ has delivered an impressive return of 119.5% in the last five years, outpacing the broader equity market. 

The expansion of Aritzia’s boutiques will likely fuel its revenue growth. The company’s new boutiques exhibit strong performance with shorter payback periods, which bodes well for top- and bottom-line growth. Moreover, Aritzia’s focus on enhancing its online customer experiences and broadening its omnichannel offerings is expected to drive its e-commerce sales. Additionally, initiatives such as introducing new product assortments and establishing a new distribution facility are anticipated to enhance traffic and reduce inventory management costs.

In summary, Aritzia is well-positioned to sustain double-digit revenue and earnings growth in the foreseeable future. In the medium term, it expects a mid-teens growth rate for its top line, while its bottom line is expected to outpace sales. This performance could potentially push its share price higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aritzia. The Motley Fool has a disclosure policy.

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