Software stocks on the TSX are currently flying under the radar, and there’s a compelling statistic to back this up. The price-to-earnings (P/E) ratio for many TSX software companies is sitting well below the tech industry average. For instance, while the global software industry typically boasts a P/E ratio of around 30-35, several top TSX-listed software stocks are trading at P/E ratios closer to 20 or even lower. This suggests that the market might not fully appreciate the growth potential and earnings power of these Canadian tech players. And this is creating a potential bargain for savvy investors.
Moreover, despite the lower valuations, the revenue growth for many of these companies remains robust. In fact, several reported double-digit increases year over year. This disconnect between strong financial performance and lower stock prices indicates that these software stocks might be undervalued. This presents an opportunity for investors to capitalize on these hidden gems before the market catches on.
Topicus
Topicus.com (TSXV:TOI) on the TSX might just be flying under the radar right now, and that’s what makes it an interesting opportunity. Despite delivering solid growth with a 14% increase in revenue and a 16.8% jump in quarterly earnings year over year, its P/E ratio remains lower than you’d expect for a company with such robust numbers. With a trailing P/E of 87.36 and a forward P/E of 58.82, there’s a strong case that the market hasn’t fully caught up to its potential yet, especially when you consider its strategic acquisitions and consistent growth.
Moreover, Topicus has a strong balance sheet with €233.75 million in cash, positioning it well for future expansion. The fact that it’s still growing organically at 4% while making smart acquisitions indicates that there’s more room for this company to thrive. If you’re looking for a software stock that combines growth with strategic management, Topicus.com might just be undervalued and worth considering before the market fully recognizes its potential.
Celestica
Celestica (TSX:CLS) on the TSX is also looking like a bargain right now, and here’s why. The company has delivered an impressive 143% surge in its stock price over the past year, yet it still trades at a modest forward P/E ratio of 14.58. Considering its strong earnings growth, with earnings per share (EPS) jumping by 79.5% year over year in Q2 2024, CLS seems undervalued relative to its potential. With robust demand in its Connectivity & Cloud Solutions (CCS) segment, driving a 51% revenue increase, Celestica is clearly capitalizing on the booming tech infrastructure market. This makes it a solid contender for future gains.
Moreover, CLS’s financials suggest a resilient company with room to grow. Its operating margin has improved to 6.3%, up from 5.5% last year. Plus, it boasts a return on equity of 20.99%, which is nothing to sneeze at. Despite its recent performance, CLS is still priced attractively, with a price-to-sales ratio of just 0.73. This means investors are paying less than a dollar for every dollar of revenue the company generates. Quite the deal, especially given Celestica’s upward trajectory. All signs point to a stock that the market hasn’t fully appreciated yet. And that makes now a potentially opportune time to jump in.
