The best growth stocks are the ones you want to hold for 10 years or even more. If a company can consistently and dependably produce strong revenue, cash flow, and earnings per share growth, its stock is very likely to follow that trajectory in the future.
Stocks fluctuate in the near term for various reasons. However, in the long run, they follow the path of the underlying business.
The best businesses deliver beautifully for patient shareholders. If you are looking for some stocks that could continue to deliver for years and even decades, here are two to think about right now.
A European growth stock in Canada
Topicus.com (TSXV:TOI) is a very attractive growth stock that likely most Canadians have never heard of. That is because Topicus and its many subsidiaries operate solely in Europe at the moment.
Topicus was spun out of Constellation Software a couple of years ago. The spin-out amalgamated two European software businesses. The combination added a significant organic growth engine to a vertical market software (VMS) consolidation strategy. This makes for an attractive growth story.
This stock has grown revenues by an annual compounded rate of 28% for the past three years. Earnings before interest, tax, depreciation, and amortization (EBITDA) have risen by a 21% rate.
In its most recent quarter, revenue was up 16% year over year. Organic growth was up 5%. Net income per share rose 29% and free cash flow increased 31%.
Europe is an attractive market for software consolidation because of its many targets, lower valuations, and reduced competition from private equity. Given its diverse languages, economies/industries, governments, and geographies, there are plenty of niche software providers that Topicus can acquire.
This stock is not cheap. It trades with a forward enterprise value-to-EBITDA ratio of 16 times. However, for a stock that could grow revenues and cash flows by a 15-20% annual rate for years, it seems like a fair price to pay today.
An outperforming financial company
goeasy (TSX:GSY) is another great long-term compounding stock. Over the past five and 10 years, investors have earned 33% and 28.5% compounded annual returns (including the dividend reinvested).
The dividend has a been a good part of its return story. Its dividend per share is up 200% in the past five years. It yields 2.5% right now.
goeasy has built out a consumer lending network across Canada. This provides it a strong advantage against competitors. In fact, it has proven that its loans perform better when people have access to its retail locations.
With a weakening economy and elevated interest rates, Canada’s big banks have tightened their lending policy. As a result, more near-prime (i.e., better quality) consumers are coming to goeasy for lending options. goeasy just hit a major milestone of $4 billion consumer loans.
This stock should get much larger after it introduces a credit card and rewards program. This is an ideal product for new Canadians looking to improve their credit rating and history.
Today, goeasy trades for 12 times earnings. It is not its cheapest valuation. However, this company could continue to grow by a high-teens rates for years.
It’s a reasonable price to pay for a great quality financial platform. goeasy stock has stood the test of time, and it is very likely to continue a great trajectory ahead.
