Canadian equity markets have been on an uptrend over the last few weeks, with the S&P/TSX Composite Index rising 17.3% from its April lows. The easing of trade tensions and favourable commentary by the Organisation for Economic Co-operation and Development (OECD) have improved investors’ sentiments, driving the equity markets higher. On Monday, the OECD predicted Canada would avoid a recession this year by posting flat economic growth.
Amid improving investors’ sentiments, I am bullish on the following three growth stocks, which possess healthy growth prospects and superior return potential.
Celestica
Celestica (TSX:CLS) offers design, manufacturing, and supply chain solutions to customers across North America, Europe, and Asia. The company posted an impressive first-quarter performance last month, with its topline and adjusted EPS (earnings per share) growing by 20% and 44.6%, respectively. Over the year, its CCS (Connectivity & Cloud Solutions) segment reported impressive year-over-year revenue growth of 28%, while the revenue from its ATS (Advanced Technology Solutions) segment rose 5%. Further, the company’s operating margin expanded from 5.9% to 7.1%, driving its EPS.
Supported by its solid first-quarter performance and improving investors’ sentiments, Celestica’s stock price has increased by 105% compared to its April lows. Despite the surge, CLS stock still trades at an 18% discount compared to its 52-week high, while its NTM (next 12 months) price-to-sales multiple stands at 1.2. Moreover, the growing investments in artificial intelligence-related infrastructure have increased the demand for Celestica’s products and services, creating multi-year growth potential. Considering all these factors, I believe the uptrend in Celestica’s stock price will continue, making it an ideal buy.
Shopify
My second pick would be Shopify (TSX:SHOP), which provides essential internet infrastructure to small and medium-scale enterprises to operate and expand their businesses. Earlier this month, the company reported a healthy first-quarter performance, with its topline growing by 26.8% amid strong performance by its subscription and merchant solutions segments. During the quarter, its GMV (gross merchandise value) rose 23% to $74.8 billion amid an expanding merchant base and same-store sales growth.
Meanwhile, Shopify reported a net loss of $682 million, primarily due to a decline of $900 million in equity investments. Removing these one-time expenses, the company’s adjusted EPS stood at $1.20, representing a 44.3% increase from the previous year’s quarter. Meanwhile, the upward momentum in the company’s financials could continue amid its expanding addressable market due to the increased adoption of the omnichannel selling model. Also, the company’s innovative product launches, expansion of Shopify Payments to new markets, and strengthening of its operational capabilities through adopting artificial intelligence (AI) could support its financial growth in the coming quarters. So, I expect the rally in Shopify’s stock price to continue, thus providing excellent buying opportunities for long-term investors.
Savaria
My final pick is Savaria (TSX:SIS), which provides accessibility solutions to people with physical challenges through its widespread manufacturing facilities and solid sales network. In the recently reported first-quarter earnings, the company’s revenue grew 5.2% amid organic growth and favourable currency translation. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 17.2%, while its adjusted EBITDA margin expanded by 190 basis points to 18.5%. The company ended the quarter with available funds of $254.7 million, which could support its capital investments and growth opportunities.
Moreover, the aging population and rising income levels continue to drive the demand for Savaria’s products and services, thus expanding its addressable market. The accessibility solutions provider is developing innovative products and expanding its production capacity to strengthen its position. Besides, it is also working on improving its operational efficiencies and streamlining its procurements to drive profitability. So, its growth prospects look healthy. The Laval-based company also rewards its shareholders by paying monthly dividends, while its forward dividend yield stands at 2.8% as of the May 23 closing price.
