Investing in quality growth stocks is a proven strategy to generate inflation-beating returns for long-term shareholders. The prospect of multiple interest rate cuts coupled with a resilient economy should act as tailwinds for these companies. In this article, I have identified two growth stocks that are flying under the radar and have the potential to deliver outsized gains in the future. Let’s dive deeper.
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Lumine Group stock
Valued at $8.8 billion by market cap, Lumine Group (TSXV: LMN) acquires, strengthens, and grows vertical market software companies in the communications and media industry. It focuses on acquiring businesses with long-term growth potential, positively impacting profit margins over time.
In Q2 2024, Lumine Group increased sales by 25% year over year to $162.8 million. However, its operating income rose by just 1% to $36.6 million in the quarter. In the first six months of 2024, Lumine Group reported 35% growth in sales while operating income was up 40% year over year.
Analysts covering Lumine expect sales to rise from $683 million in 2023 to $1.2 billion in 2025. Bay Street forecasts Lumine Group’s adjusted earnings to expand from $0.69 per share in 2024 to $0.99 per share in 2025. So, priced at 34 times forward earnings, Lumine stock trades at a discount of almost 20%, given consensus price target estimates.
MDA Space stock
Valued at $2.6 billion by market cap, MDA (TSX: MDA) designs, manufactures, and services space robotics, satellite systems and components, and intelligence systems in Canada and other international markets.
It offers geo-intelligence solutions that use satellite-generated imagery and analytic services to deliver crucial insights in verticals such as national security, climate change monitoring, and maritime surveillance. The company also provides robotics and space operations that enable exploration by using autonomous robotics and vision sensors on the surfaces of the moon and Mars.
In the last 12 months, MDA Space has reported revenue of $861 million, compared to sales of $394 million in 2020. Its operating profit totalled $70.9 million in the past year, compared to an operating loss of $18.8 million in 2020.
MDA Space stock has returned 84% since October 2023 and currently trades close to its all-time high. The growth story for MDA Space is far from over, making it a top investment option at the current valuation.
It ended Q2 with a backlog of $4.5 billion, providing investors with significant top-line visibility. The backlog includes a $1 billion contract from the Canadian Space Agency. In the June quarter, MDA also advanced the manufacturing of MDA Chorus, its next-generation Earth Observation constellation. MDA unveiled additional features, including a new vessel detection onboard processing demonstration capability that enables data delivery and insights for maritime customers.
Analysts expect MDA Space to increase sales from $807 million in 2023 to $1.4 billion in 2025. Its adjusted earnings are forecast to expand from $0.42 per share to $0.95 per share in this period.
Given its strong earnings growth visibility and steady revenue expansion, MDA stock is cheap and priced at 22.7 times forward earnings.
