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.
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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.
