Despite the uncertainty surrounding the impact of Trump tariffs, the Canadian equity markets have been on an upward momentum, with the S&P/TSX Composite Index making a new high yesterday. Meanwhile, the index is up 13.2% for this year. Strong quarterly earnings and expectations of interest rate cuts by the Federal Reserve amid lower-than-expected July inflation in the United States have driven the equity markets higher. However, the following two stocks have missed the rally and are currently trading at attractive valuations. Given their healthy growth prospects and discounted stock prices, I expect these two Canadian stocks to outperform over the next three years.
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WELL Health Technologies
WELL Health Technologies (TSX: WELL), which develops products and services to assist healthcare professionals in delivering positive patient outcomes, has been under pressure this year. It has lost over 26.8% of its stock value year-to-date (as of the August 13 closing price) amid the ongoing investigation into the billing practices of its subsidiary, Circle Medical. However, the company posted an impressive second-quarter performance today, with its topline growing by 57% to $356.7 million. Organic growth, acquisitions made over the last four quarters, and a $40.5 million contribution from HEALWELL boosted its sales. It had around 1.7 million patient visits during the quarter, with over 1 million coming from Canada.
Further, the company reported an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $49.7 million, representing a 231% increase from the previous year’s quarter. Along with topline growth, the expansion of its gross margin from 40.3% to 44.5% boosted its adjusted EBITDA. Meanwhile, its adjusted EPS (earnings per share) stood at $0.10, representing a substantial improvement from $0.02 in the previous year’s quarter.
Moreover, the digitization of healthcare procedures has created long-term growth potential for WELL Health. Further, the company is focusing on the development of new products and services that can strengthen its market share. It has also made around 14 acquisitions this year and has signed 15 LOIs (letters of intent) that could contribute $134 million to its annualized revenue. Along with these growth initiatives, the company’s management is working on improving its margin profile and operating leverage. Considering its multiple growth drivers, I believe WELL Health will continue to deliver solid financials in the coming quarters, thereby making it an excellent buy.
Docebo
Another Canadian stock that is trading at a discount is Docebo (TSX: DCBO), which has lost over 31% of its stock value this year. Rising competition and the departure of key executives appear to have weighed on its stock price. However, the e-learning platform provider posted a healthy second-quarter performance last week, outperforming its revenue and profitability guidance. Its topline came in at $60.7 million, beating the company’s guidance of $59–$59.2 million. Year-over-year, the topline grew 14% amid new customer acquisitions, a higher average contract value, and the favourable impact of currency translation.
Meanwhile, its adjusted net income came in at $8.9 million or $0.30/share, representing a year-over-year increase of 15.4% from the previous year’s quarter. It also generated free cash flow of $11.4 million, representing 18.7% of its revenue. It is an improvement from 15.9% in the previous year’s quarter.
Moreover, the global LMS (learning management systems) market is expanding amid increased adoption of remote learning solutions, rapid digitization of businesses, and technological developments. Meanwhile, Docebo is developing artificial intelligence-powered features to strengthen its position. Additionally, the company’s management has raised its guidance for this year. Now, management expects its topline to grow 10–11%, while its adjusted EBITDA margin is forecasted to be between 17–18%. Given its discounted stock price and healthy growth prospects, I am bullish on Docebo and expect it to deliver superior returns over the next three years.
