With the Canadian stock market facing a correction sparked by the ongoing trade tensions between the U.S. and Canada, now is a prime time for long-term investors to consider growth stocks. Below are three compelling stocks to look into, each with strong growth potential and the ability to deliver impressive returns over the long haul.
1. VersaBank: A digital bank with big potential
VersaBank (TSX:VBNK) stands out as a digital bank offering a unique business model that helps it keep operating costs low. Focused on commercial lending, deposits, and mortgages, VersaBank differentiates itself with its claim to be a “highly risk-mitigated bank with the operating leverage and high-growth potential of a technology company.”
For the last fiscal year, VersaBank reported total assets of $4.8 billion, revenue of $111.6 million, and net income of $38.8 million. What makes this small-cap stock attractive is its growth rate. Over the past decade, the stock achieved a compound annual growth rate of 13.7% in revenue per share, with the most significant growth occurring over the last couple of years.
In 2024, the stock hit a high of $25.75, but with the market correction, it now sits at $14.53 per share and a blended price-to-earnings (P/E) ratio of just 9.8. This significant pullback presents an opportunity for investors to buy into a high-growth bank at a discount. With a market cap of about $473 million and only three analysts covering the stock, VersaBank remains under the radar, with the most bearish analyst forecasting a 51% upside to $22 per share.
2. EQB: A high-growth bank with strong dividend potential
EQB (TSX:EQB), formerly known as Equitable Bank, is another name that stands out in Canada’s banking sector. The bank offers high-interest savings accounts, mortgages, and commercial lending, and in the last fiscal year, it reported total assets of $51.1 billion, revenue of $1.3 billion, and net income of $390 million.
EQB has been an exceptional performer, delivering a 14% annualized return over the last 10 years. While it reached a high of $114.22 last year, the stock is now trading at a more reasonable price of $94.63 per share, with a P/E ratio of 8.4. This correction presents an ideal opportunity to buy a high-growth stock at a discount. EQB also offers a dividend yield of 2.1%, backed by an impressive 18% 10-year dividend growth rate.
Analysts suggest that EQB is trading at a 23% discount, making it a compelling buy for those seeking a growth stock with a solid dividend yield.
3. Constellation Software: A tech giant with proven long-term growth
Constellation Software (TSX:CSU) is a renowned leader in the software industry, known for its strategic acquisitions and long-term growth strategy. The company focuses on acquiring, managing, and building vertical market software businesses, with a diversified portfolio across industries such as healthcare, finance, and education.
While Constellation Software seldom trades at a discount, the current market correction has created an opportunity. Analysts estimate that the stock is currently trading at an 11% discount. Over the last decade, Constellation has delivered exceptional returns, turning $1 into $12, with annualized returns of nearly 29%.
For long-term investors looking for a stable, growth-driven tech stock, Constellation Software remains an excellent choice. Despite its high valuation, the company’s consistent performance and commitment to shareholder value make it a top pick for those with a long-term outlook.
