Supported by interest rate cuts and improving company earnings, the Canadian equity markets have delivered impressive returns this year, with the S&P/TSX Composite Index rising by 23.2% year-to-date. Meanwhile, the following two stocks have outperformed the broader equity markets by delivering over 40% returns. Let’s assess their recent performances and growth prospects to determine whether the momentum in these stocks can continue.
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Celestica
Celestica (TSX: CLS) is one of the top performers in the Canadian equity markets this year, with returns of over 196%. Its impressive performance in the first two quarters, along with the growing demand for its products and services amid increased adoption of artificial intelligence (AI), has contributed to an increase in the company’s stock price. Amid the recent buying, the company’s NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples have increased to 2.5 and 44.3, respectively.
The surging demand for computing power driven by the rapid adoption of AI has led hyperscalers to boost investments in data centre expansion, consequently increasing demand for Celestica’s products and services. The company is also developing advanced products, such as data centre switches and storage controllers, to address the evolving needs of its customers and reinforce its market position. Also, the growing defence budgets amid rising geopolitical tensions could boost the financials of its advanced technology solutions segment.
On the back of its solid performance in the first six months and healthy growth prospects, Celestica’s management has raised its guidance. The updated guidance projects a 19.7% year-over-year increase in revenue, with the operating margin expected to rise to 7.4%, up from 6.5% in 2024. Meanwhile, its adjusted EPS (earnings per share) could grow by 41.8% to $5.50, while generating free cash flow of $400 million this year. Given its strong growth outlook, I believe the company’s current valuation remains reasonable, making it a compelling buy for investors with a long-term horizon of over three years.
Shopify
Another Canadian stock that has delivered impressive returns this year is Shopify (TSX: SHOP), which is trading 43.9% higher year-to-date. Its solid performance in the first two quarters has boosted its stock price.
In the first two quarters, the company has posted a revenue of $5 billion, representing a 29% increase from the previous year. The strong performance from both its merchant solutions and subscription solutions segments drove its topline. Besides, its operating income grew 50.6%, while its operating margin expanded 190 basis points to 14.9%. The company also generated free cash flow of $785 million in the first six months, representing 15.6% of its total revenue.
Meanwhile, I expect the upward momentum to persist, supported by an expanding addressable market amid increased adoption of the omnichannel selling model and Shopify’s ongoing growth initiatives. The company is focusing on developing and launching new products that cater to its customers’ evolving needs, as the ongoing trade war continues to pose challenges for small and medium-sized enterprises. It is expanding its payments platform into new markets and introducing enhanced features to facilitate cross-border transactions, enabling merchants to accept multiple currencies seamlessly.
Shopify has made extensive investments in AI to develop innovative products designed to attract a broader customer base and support business growth. Also, the company is utilizing AI to improve its operating efficiency and drive profitability. Considering these growth prospects, I believe Shopify can deliver oversized returns over the next three years.
