Canadian investors should consider holding growth stocks in a Tax-Free Savings Account (TFSA) to benefit from outsized gains over time. Typically, fundamentally strong companies growing steadily have the potential to deliver game-changing returns to shareholders. If these multi-bagger stocks are held in a TFSA, any returns from capital gains or dividends are tax-exempt.
The annual TFSA contribution limit increased to $7,000 in 2024. In this article, I have identified two top TSX stocks that can potentially turn a $7,000 investment into $75,000 by the end of this decade.
Shopify stock
Valued at $142 billion by market cap, Shopify (TSX:SHOP) is a diversified e-commerce company that helps merchants to display market and sell products through multiple sales channels, including digital storefronts, physical retail locations, social media storefronts, mobile apps, and others. It also enables enterprises to manage products and inventory, process orders, and make payments.
Shopify continues to grow rapidly, increasing sales by 21% year over year in the second quarter (Q2) of 2024. It grew gross profits faster than revenue, and a focus on cost savings allowed the company to more than double its free cash flow margin of 16% in the last 12 months.
Shopify is also expanding its offline business as its point-of-sale solution continues to gain traction. In Q2, its offline gross merchandise volume rose by 27% year over year as it has attracted the largest global merchants with multiple store locations.
In the June quarter, Shopify reported revenue of US$2 billion. If we adjust for its logistics business, this was the fifth consecutive quarter in which Shopify increased sales by at least 25% annually.
Its stable top-line growth is finally translating into free cash flow and earnings. In the last 12 months, Shopify has reported a free cash flow of US$1.29 billion, up from US$905 million in 2023. Analysts tracking the TSX tech stock expect earnings to expand from US$1 per share in 2023 to US$1.85 per share in 2025. Analysts remain bullish and expect SHOP stock to surge over 40% in the next 12 months.
Propel Holdings stock
Valued at a market cap of $1.13 billion, Propel Holdings (TSX:PRL) is a small-cap company in the cyclical lending sector. Propel is an online lending platform that facilitates access to credit products, including installment loans and lines of credit, serving customers in Canada and the U.S.
Propel’s sales have increased from $68 million in 2019 to $382.4 million in the last 12 months. Its asset-light model allows Propel to enjoy high profit margins, and it has reported an operating income of $82 million in the past four quarters.
Propel pays shareholders an annual dividend of $0.56 per share, indicating a yield of 1.7%. Propel’s annual dividend expense is roughly $19 million, given its outstanding share count. A widening bottom line has allowed Propel to raise its dividends from $0.38 per share in 2023.
Bay Street expects Propel’s earnings to more than double from $1.35 per share in 2023 to $3.28 per share in 2025. Priced at 10 times forward earnings, the TSX stock is cheap and trades at a 10% discount to consensus price target estimates.
