Canadians should consider allocating a small portion of their equity investments towards quality growth stocks. Typically, fundamentally strong growth stocks generate outsized gains for long-term investors despite the volatility associated with these companies. Moreover, you can hold growth stocks in registered accounts such as the TFSA (Tax-Free Savings Account) to benefit from tax-free returns for life.
Here are two Canadian growth stocks TFSA investors can buy right now. The two companies are profitable and positioned to deliver market-beating gains to shareholders in 2024 and beyond. Let’s see why.
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Propel Holdings stock
Valued at $875 million by market cap, Propel Holdings (TSX: PRL) went public in late 2021. In the last 12 months, the fintech stock has already returned 244% to shareholders and is poised for additional gains due to its cheap valuation and expanding profit margins.
Propel Holdings operates a lending platform that offers credit products such as installment loans and lines of credit. Despite sluggish demand for loans due to higher interest rates, Propel Holdings reported record first-quarter (Q1) revenue of $96.5 million, an increase of 47% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $29.5 million, while adjusted net income grew by 84% to $15.3 million.
Analysts tracking the TSX stock expect adjusted earnings to expand from $1.35 per share in 2023 to $3 per share in 2025. So, priced at 8.4 times forward earnings, Propel stock is really cheap and trades at a discount of over 20% to consensus price targets.
Propel is part of a cyclical sector but continues to grow rapidly. The company’s sales have grown at an annual rate of 47%, while its net income has more than doubled in this period. An expanding bottom line allows Propel to pay shareholders a quarterly dividend of $0.13 per share, up from $0.095 per share in 2021.
Lumine Group stock
Valued at $9.8 billion by market cap, Lumine Group (TSXV: LMN) went public in 2023 and has returned 120% to shareholders since its IPO (initial public offering). Lumine is a subsidiary of Constellation Software and focuses on acquiring businesses with long-term potential, primarily in the communications and media industry.
Earlier this year, Lumine completed the purchase of Nokia’s device management and service management platform business for roughly US$200 million. It also completed the acquisition of the Axyom Cloud Native 5G Core Software & RAN Assets from Casa Systems. These acquisitions should translate to higher sales and earnings growth for the tech company.
In Q1 of 2024, Lumine’s sales increased by 48% to $141.1 million, up from $95.4 million in the year-ago period. Its operating income rose 105% to $44.5 million, while operating cash flow rose by $20 million to $35 million in the March quarter. Moreover, free cash flow improved from $11.7 million to $28.8 million in the last 12 months.
Bay Street forecasts Lumine to end 2025 with adjusted earnings per share of $1.04. So, priced at 35.5 times forward earnings, the tech stock might seem expensive. However, analysts remain bullish and expect Lumine to surge over 10% in the next 12 months.
