The S&P/TSX Composite Index has rebounded strongly from its April lows, rising 18.2%. Easing trade tensions and favourable commentary from the Organization for Economic Co-operation and Development (OECD) on the Canadian economy have improved investors’ sentiments, driving the equity markets higher. Amid rising investor confidence, I am bullish on the following three stocks, which offer healthier growth prospects.
Dollarama
Dollarama (TSX:DOL) is a discount retailer operating 1,616 stores across Canada, with 85% of Canadians having at least one store within a 10-kilometre vicinity. The company’s superior direct-sourcing model, purchasing capabilities, and efficient logistics system have helped reduce its expenses, enabling it to offer a wide array of products to its customers at competitive prices. Therefore, the Montreal-based retailer enjoys healthy same-store sales even in challenging environments. Supported by its healthy and reliable financials, the company has delivered returns of approximately 4,580% over the last 15 years, at an annualized rate of 29.2%.
Moreover, Dollarama expects to increase its store network to 2,200 by the end of fiscal 2034. Considering its capital-efficient model, quick sales ramp-up, and lower store network maintenance capex requirements, these expansions could boost both its top and bottom lines. The retailer also has solid exposure to the Latin American market, with a 60.1% stake in Dollarcity, which operates 632 discount stores across the region. Meanwhile, Dollarcity continues to expand its store network, aiming to reach 1,050 by the end of fiscal 2032. Dollarama can also increase its stake to 70% by exercising its option by 2027.
Furthermore, Dollarama is venturing into the Australian retail market through the acquisition of the Reject Shop. The company is working on acquiring the Australian discount retailer for $233 million and expects to complete the deal in the second half of this year. Considering these growth prospects, I am bullish on Dollarama.
Shopify
Second on my list would be Shopify (TSX:SHOP), which had reported a healthy first-quarter performance earlier this month. Its GMV (gross merchandise value) grew 23% to $74.8 billion, driven by the expansion of its customer base and same-store sales growth among existing merchants. Also, its topline grew 26.8% amid strong performance from subscription and merchant solutions. Despite the topline growth, the company incurred a net loss of $682 million, mainly due to a $900 million decline in its equity investments. Removing these one-time expenses, its adjusted EPS (earnings per share) stood at $0.25, a 25% increase from the previous year’s quarter.
Meanwhile, more small and medium-sized businesses are adopting an omnichannel selling model, thereby driving demand for Shopify’s products and services. The company is developing innovative and artificial intelligence (AI)-powered products, venturing into new markets, and growing the penetration of its Shopify Payments, which could support its topline growth. The company is also utilizing AI to enhance its operational capabilities and improve operational efficiency. Considering all these factors, I believe the uptrend in Shopify’s financials will continue, which will support its stock price growth.
Celestica
My final pick would be Celestica (TSX:CLS), which has witnessed solid buying over the last weeks, rising 98% from its previous month’s lows. The company’s impressive first-quarter performance and improving investors’ sentiments have driven its stock price. In the recently reported first-quarter earnings, its revenue and adjusted EPS grew 20% and 44.6%, respectively.
Meanwhile, the growing use of AI has increased AI-related investments, thereby driving demand for Celstica’s storage and networking products. Additionally, the company is focusing on product innovation to launch new products that meet the growing needs of its customers and strengthen its market position. Despite the recent increase in its stock price, the Toronto-based company still trades at a reasonable NTM (next 12 months) price-to-sales multiple of 1.2, making it an excellent buy.
