This Growth Stock Has Market-Beating Potential

Here’s one top growth stock that could beat the market over long periods of time Canadian investors should consider right now.

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For those seeking to outperform the market, investing in growth stocks tends to provide the sort of long-term upside that’s proven to outperform in good times. If this bull market continues, certain growth names such as Boyd Group Services (TSX:BYD) may be poised to continue rallying. And despite a recent dip, there’s plenty of optimism around, such as growth-by-acquisition plays, as a way to generate outsized returns.

Let’s dive into why Boyd may be a solid option for growth investors to consider buying on this dip.

Growth via acquisition is a strategy that works

A top repair and auto body service company, Boyd has slowly consolidated the North American industry, buying up a range of family-run enterprises over the years. Rolling these businesses under one of the company’s banners (Boyd Autobody and Glass in Canada and Gerber Collision in the U.S.), Boyd has proven its ability to improve the fundamentals of these underlying businesses.

By essentially buying companies for less than they are worth (after upgrades and a banner shift), Boyd investors are rewarded with improved return on invested capital over time. As one of the largest players in the auto repair business in North America, Boyd has built a nice moat around its core operations. This provides the sort of network effects and scalable growth model so many investors are after.

Strong financials continue to shine

Ultimately, this growth-by-acquisition strategy doesn’t mean much if the company can’t make money. That’s far from the case for Boyd, which continues to provide blowout earnings almost every quarter.

This past earnings report in late March, Boyd reported revenue growth of 21% year over year to $2.95 billion. Net income came in at $86.7 million, more than doubling year over year. That’s the kind of margin expansion many investors were looking for and justifies the stock’s recent move higher.

Of course, with a market capitalization of $5.6 billion, Boyd will certainly need to produce higher profits moving forward to justify its multiple. This isn’t a cheap stock. However, investors gain exposure to a company with a clear growth trajectory and strategy that makes sense. That’s worth something, and investors are clearly willing to pay up.

Can this growth continue?

It’s my view that Boyd’s business model is not only sustainable, but there are many years of continued growth likely ahead. That’s largely because the auto body sector remains very fragmented. As baby boomers age and look to dispose of their businesses, Boyd will be ready to scoop these companies up and continue expanding.

For those who think this is a space worth investing in, I think Boyd is certainly worth a look at current levels. The stock trades around 45 times earnings, but given the company’s earnings growth, I think its multiple is just fine here.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Boyd Group Services. The Motley Fool has a disclosure policy.

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