Despite the rising geopolitical tensions amid the Israel-Iran conflict, the Canadian equity markets have maintained their uptrend, with the S&P/TSX Composite Index hitting a new high on Monday. Amid solid buying over the last few weeks, the index is up 19.5% compared to its April lows and also 8% higher year to date. However, the following two growth stocks have failed to participate in this recovery rally and are available at a substantial discount, making them excellent buys.
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goeasy
goeasy (TSX:GSY) is a subprime lender that has been under pressure over the last few months, with the company’s stock trading 22% lower than its 52-week high as of the June 18th closing price. Last month, the company reported a weak first-quarter performance, with its adjusted earnings per share (EPS) falling 7.8% to $3.53. A decline in the company’s total yield on consumer loans, combined with an increased allowance for future credit losses amid a weak macroeconomic environment, led to a decrease in its earnings.
The recent pullback in goeasy’s stock price has also dragged its valuation down to attractive levels. The company currently trades at next-12-month (NTM) price-to-sales and NTM price-to-earnings multiples of 1.5 and 8.4, respectively.
Moreover, falling interest rates and an improving macroeconomic environment could drive credit demand, thus benefiting goeasy. Meanwhile, the Mississauga-based subprime lender continues to launch new innovative products, venture into new markets, implement strategic initiatives, and add new delivery channels, which could support its loan portfolio expansion and financial growth. The company’s management projects that its loan portfolio and top line could grow at an annualized rate of 18% and 11.4% through 2027. Amid these growth prospects, the company’s management anticipates delivering a return on equity of over 23% annually for the next three years. Considering these growth prospects and its discounted stock price, I am bullish on goeasy.
Docebo
Another Canadian growth stock that trades at a substantial discount is Docebo (TSX:DCBO), which is down approximately 52% compared to its 52-week high as of the June 18 closing price. Despite its solid financials, the cloud-based learning management solutions (LMS) provider has been under pressure due to rising competition and expectations of growth slowing down. Meanwhile, in its recently reported first-quarter earnings, the company posted revenue growth of 11% amid a solid performance from the subscription segment. Additionally, the company experienced a 7.4% year-over-year increase in its average contract value during the quarter, which positively impacted its top line.
Supported by its top-line growth, Docebo reported an adjusted EPS of $0.27, representing a 16.7% increase from the previous year. It also generated $9 million of free cash flow, representing a margin decline of 2.2% from last year’s quarter. With $91.9 million of cash and cash equivalents at the end of its first quarter, the company is well-equipped to fund its growth initiatives.
Moreover, the LMS market is growing amid a rise in remote working and learning, technological advancements, and scalability and cost-effectiveness. Meanwhile, Docebo continues to launch innovative artificial intelligence-powered products, which could help expand its customer base and drive financial growth. The recent pullback has dragged its valuation to attractive levels, with its NTM price-to-earnings multiple at 22.1. Considering all these factors, I believe Docebo would be an excellent buy right now.
