Investing in equity markets is one efficient way to create wealth in the long run. However, investors should be cautious when choosing stocks, as returns are not guaranteed. Investors with higher risk-taking abilities and longer investment horizons can earn superior returns by investing in growth stocks.
Indeed, investors can triple their investments in six years by investing in stocks that deliver over 20% of annualized returns. Here are two stocks that can potentially deliver over 20% in annualized returns in the long run.
goeasy
goeasy (TSX: GSY) is a financial services company offering subprime customers leasing and lending services. Over the last five years, the lender has grown its revenue and diluted EPS (earnings per share) at an annualized rate of 19.8% and 31.9%, respectively. Propelled by this solid operating performance, the company has returned around 333.5% in the last five years at a CAGR (compound annual growth rate) of 34%.
In 2023, the Mississauga-based subprime lender originated $2.7 billion of loans, thus expanding its loan portfolio by 30% to $3.7 billion. The expanding loan portfolio increased revenue by 23% year over year while its diluted EPS grew by 23%. Its efficiency rate, which measures how well the company has managed to control its overhead costs, stood at 30.2%, an improvement of 340 basis points from 33.6%. Also, amid stable credit and payment performances, the company’s net charge-off rate declined from 9.2% to 8.9%, while its allowance for credit losses also fell from 7.6% to 7.3%.
Meanwhile, goeasy will continue to drive its financials in the coming years by improving operating metrics, expanding product offerings, developing new distribution channels, and strengthening its auto financing segment. The company’s management has provided impressive guidance for the next three years, with its loan portfolio projected to grow by 65% from its current levels. Amid the expansion, its revenue could grow at an annualized rate of 12.9% until 2026.
Besides, GSY also pays a quarterly dividend with its forward yield at 2.84% and trades at an attractive NTM (next 12 months) price-to-earnings multiple of 9.8. Considering all these factors, I believe goeasy could deliver superior returns in the long run.
Docebo
The demand for enterprise learning management systems is growing amid the rise in remote working and learning, thus creating multi-year growth potential for Docebo (TSX: DCBO). It offers a customizable enterprise learning management system that can improve businesses’ engagement, productivity, and customer connections. Since 2019, the company’s revenue has increased at an annualized rate of 44.5%. An expanding customer base and growing ARPU (average revenue per user) have driven the company’s top line.
Amid the top-line growth, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) has improved from a loss of $5.6 million in 2019 to a profit of $16.3 million. Meanwhile, the company is investing in research and development and sales and marketing initiatives to strengthen its position in the growing market. Besides, its customers choose multi-year subscriptions, thus providing stability and visibility towards its future sales. Given the favourable market environment and growth initiatives, I believe Docebo is well-positioned to drive its financials in the coming years, thus boosting its share value.
