Investing in quality growth stocks should help investors generate outsized gains over time. Typically, growth stocks command premium valuations during bull runs and trail the broader markets significantly when sentiment turns bearish.
So, if you expect the equity markets to move higher through 2030, holding quality growth stocks such as Lululemon (NASDAQ:LULU) and Docebo (TSX:DCBO) in a TFSA (Tax-Free Savings Account) might be a great strategy.
The TFSA was introduced in 2009 and allows Canadian investors to benefit from tax-free gains for life. You can hold qualified investments such as stocks, bonds, mutual funds, and exchange-traded funds in a TFSA and create a diversified portfolio while sheltering your returns from Canada Revenue Agency taxes.
The TFSA contribution limit in 2024 has increased to $7,000. Here’s why you should consider investing $500 in Docebo and Lululemon right now.
Lululemon is down 31% from all-time highs
Valued at a market cap of US$44 billion, Lululemon stock has returned roughly 2,400% since its initial public offering in July 2007. Despite these market-thumping gains, Lululemon stock trades 31% below all-time highs, allowing you to buy the dip.
Lululemon stock lost over 16% in a single trading session following its fiscal fourth quarter (Q4) of 2024 (which ended in January). In Q4, Lululemon reported revenue of US$3.21 billion and adjusted earnings of US$5.29 per share. Comparatively, analysts forecast revenue at US$3.19 billion and earnings at US$5 per share.
While Lululemon beat consensus estimates in Q4, it issued disappointing guidance as it expects to see soft sales in the United States. Lululemon emphasized it is wrestling with uncertain demand and lower discretionary spending due to an uncertain macro environment. For instance, in the Americas, Lululemon sales were up just 9%, compared to a 29% growth in the year-ago period.
Alternatively, the pullback in LULU stock allows you to buy a quality stock at a discount. Priced at 24.7 times forward earnings, LUU stock is forecast to expand earnings by 11.3% annually in the next five years. Analysts remain bullish on LULU stock and expect shares to surge over 30% in the next 12 months.
Is Docebo stock a good buy right now?
Docebo is a Canada-based company that offers e-learning solutions to enterprises. Valued at $1.4 billion by market cap, DCBO stock is down 46% from all-time highs.
In Q4 of 2023, Docebo reported subscription sales of US$46.5 million, up 28% from the year-ago period. Subscription sales account for 94% of revenue, allowing Docebo to generate stable cash flows across business cycles.
Similar to other asset-light tech companies, Docebo enjoys high profit margins, ending Q4 with a gross margin of 81.2%. However, unlike several other growth stocks, Docebo is now reporting consistent profits, ending Q4 with an adjusted net income of US$8.3 million or US$0.26 per share, up over 100% year over year.
Additionally, Docebo reported a free cash flow of US$7 million, indicating a margin of 14.2%. Analysts now expect Docebo’s earnings to take off due to its high operating leverage. Bay Street forecasts Docebo to improve earnings from US$0.08 per share in 2023 to US$0.73 per share in 2024 and US$1.14 per share in 2025.
DCBO stock might seem expensive at 64 times forward earnings, but it trades at a 20% discount to consensus price target estimates.
