2 Canadian Growth Stocks I’d Stash in a TFSA for the Long Run

TFSA investors can consider holding quality growth stocks such as Propel Holdings right now and derive outsized gains in the next five years.

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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.

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.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Propel. The Motley Fool recommends Constellation Software and Lumine Group. The Motley Fool has a disclosure policy.

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