While valuations have been high entering 2025, recent stock market corrections are presenting some reasonable buying opportunities. This is especially true if you have an extended time horizon to invest.
Stocks that steadily compound look expensive near term but are cheap long term
Stocks that can steadily compound at high rates of return (like over 15% a year) tend to always look expensive in the near term. However, as they grow earnings/free cash flow per share and rapidly generate value, investors can find that they are actually much cheaper than first thought.
These stocks tend to trade close to their 52-week highs. Stocks that have won in the past have a good chance of winning in the future. You might only pick these stocks on slight pullbacks, but generally it ends up paying off in the end.
If you are looking for stocks that could continue to skyrocket in 2025 and beyond, here are three to contemplate.
A logistics software provider with a great record
Descartes Systems (TSX:DSG) had a very strong run in 2024. Its stock rose 49% last year. Luckily, it has pulled back by 6% since hitting all-time highs in mid-December. To be clear, this stock is by no means cheap.
It trades with a forward price-to-earnings (P/E) ratio of 41 times and an enterprise value (EV)-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 30 times. However, Descartes should excel in the current environment.
With the threat of tariffs across North America and potentially the globe, Descartes’s trade compliance products should see high demand. Global trade and transport are about to get much more complicated. Descartes has the software services to help alleviate that strain.
This growth stock is really well-positioned to see strong organic growth. Likewise, with a strong balance sheet and strong free cash flow generation, further accretive acquisitions are likely.
An international tech stock
Topicus.com (TSXV:TOI) didn’t quite have the exceptional year that Descartes had. However, there are good signs that 2025 could be a good year.
Topicus was spun out a few years ago from the much-acclaimed Constellation Software. It is replicating a similar niche software acquisition strategy. However, it focuses primarily on European software companies. Given that it has limited North American (and tariff) exposure, it is an attractive company.
It just announced a substantial acquisition of a high-quality government-focused software business in Belgium. Topicus has a solid balance sheet, and it generates strong cash flow.
It should be primed to continue its aggressive acquisition strategy. Hopefully, it can mimic Constellation’s returns in the year (and years) ahead.
A small software company growing quickly
If you are looking for a smaller company with big potential, VitalHub (TSX:VHI) is interesting. Like the stocks above, it is not cheap. That is especially true after it soared over 160% in 2024. It trades with a P/E ratio of 55 and an EV/EBITDA ratio of 23.
Yet, the company is in a strong position for good growth in 2025. It provides software that helps make healthcare systems more effective and efficient. Demand for its products is gaining traction as it scales around the globe.
Given its high valuation, VitalHub has completed a few equity offerings. It has a cash-rich balance sheet that it can use to acquire more healthcare software businesses. So far, its merger and acquisition strategy has been very successful, and one can expect that to continue in the years ahead.
