Growth stocks can potentially grow their financials at a superior rate than the industry average, thus delivering oversized returns in the long run. These companies usually will not pay dividends as they invest their profits back into their businesses to drive growth. However, they are considered riskier due to uncertainties over their future earnings. Given their higher risk and superior return potential, investors with a higher risk tolerance should look to buy these stocks.
I am bullish on the following two growth stocks, which have been under pressure over the last few months.
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WELL Health Technologies
WELL Health Technologies (TSX: WELL) develops technologies and services to aid healthcare providers in improving patient outcomes. The company has been under pressure over the last few months due to a decline in its fourth-quarter adjusted net income and underwhelming 2024 guidance. It has lost around 70% of its stock value compared to its 52-week high.
Meanwhile, I believe the steep correction offers excellent buying opportunities for long-term investors. The digitization of healthcare procedures and growing popularity of telehealthcare services are expanding the addressable market for WELL Health. Besides, the company continues to make strategic acquisitions to expand its footprint. Yesterday, it signed an agreement to acquire 10 primary care medical clinics from Shoppers Drug Mart, which could contribute $8 million to its annualized revenue. Further, the company also focuses on developing innovative products, which could drive its organic growth.
Apart from topline growth, WELL Health is optimizing its expenses and operational efficiency, which could boost its profitability. Given its healthy long-term growth prospects, cost-cutting initiatives, and discounted stock price, WELL Health could deliver superior returns over the next three years.
Lightspeed Commerce
Lightspeed Commerce (TSX: LSPD) offers products and services that unify online and physical operations, allowing enterprises to scale their businesses and improve operational efficiency. It also provides global payment solutions and helps connect with a supplier network. Year to date, the company has lost around 38% of its stock value compared to its 52-week high due to its cautious outlook and uncertain macro environment. Amid the sell-off, its valuation has declined to attractive levels, with its NTM (next 12 months) price-to-sales multiple at 1.9.
Looking forward, the accelerated transition towards an omnichannel selling model has created multi-year growth potential for Lightspeed. The company is launching new products and extending them to new markets, growing its customer base and ARPU (average revenue per user). Also, its Unified Payments initiative has resonated well with its customers, with its GPV (gross payment volume) as a percentage of GTV (gross transaction value) increasing to 29% while maintaining its churn rate. Further, the company could also benefit from the continued shift of its customers towards higher GTV customer locations.
Meanwhile, Lightspeed’s disciplined approach towards its expenses has resulted in positive EBITDA (earnings before interest, tax, depreciation, and amortization) for the second consecutive quarter. The company’s management expects its adjusted EBITDA to break even or exceed it in fiscal 2025. Considering all these factors, I believe Lightspeed will deliver oversized returns over the next three years despite its near-term weakness.
