Growth stocks never rise in a straight line. Even the strongest long-term compounders hit speed bumps — sometimes sharp ones. But corrections can set the stage for the next major leg higher, especially when the underlying business continues to grow in the long run.
Two top Canadian growth stocks have been battered this year, each for very different reasons. Yet both now trade at valuations that could look unbelievably cheap in hindsight. If their fundamentals keep marching forward, these stocks have the potential to skyrocket in 2026 and beyond.
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1. Constellation Software: A rare compounder resetting for its next climb
Constellation Software (TSX:CSU) is not usually a name associated with massive pullbacks. This is a company known for its disciplined acquisition strategy, remarkable capital-allocation skill, and enviable record of long-term compounding. Yet even this market darling hasn’t been spared: shares sank roughly 40% from their highs before investors started stepping back in.
Constellation’s entire business model is built around acquiring small vertical-market software companies — firms with sticky customer bases and dependable, recurring maintenance revenue.
Constellation lets them operate independently, preserving their entrepreneurial spirit while supplying the capital, support, and expertise needed to scale.
This decentralized structure has created a flywheel effect: recurring cash flows are funnelled into new acquisitions, which then generate even more cash, which, in turn, fuels even more acquisitions.
Over time, this cycle has produced powerful returns. Constellation has averaged an impressive 24% return on equity over the past decade — an extraordinary figure for a company of its size and maturity.
After its recent correction, the stock looks unusually attractive. Trading around $3,383 per share, Constellation sits at a blended price-to-earnings (P/E) ratio near 25, a discount to its projected earnings growth of about 20% annually over the next couple of years. Analysts’ consensus price target suggests the stock is more than 31% undervalued, implying near-term upside of roughly 46%.
If this blue-chip compounder continues executing its time-tested strategy, the current pullback may ultimately be remembered as a rare buying opportunity.
2. goeasy: A high-growth, high-yield comeback story
While Constellation’s decline came as a surprise, goeasy (TSX:GSY) faced more dramatic pressures. A short-seller attack combined with a soft consumer environment sent the stock tumbling nearly 46% from peak to trough. But now, sentiment is starting to shift — and patient investors may reap the rewards.
At about $126 per share, goeasy offers a robust 4.6% dividend yield. The stock trades at an appealing blended P/E of just 7.7, roughly a 35% discount to its long-term average valuation. That gap alone leaves room for as much as 53% near-term upside if valuations normalize.
Management has demonstrated an unwavering commitment to shareholder returns. goeasy has increased its dividend for 10 consecutive years at an astonishing compound rate of 30%. At the same time, the company has posted an average return on equity of 23% over the past decade — incredible in the financial services sector.
Investor takeaway
Nobody can predict exactly when these stocks will take off again. But both companies have proven business models, strong financial performance, and a likely path to sustain double-digit growth in the long run. If they continue delivering as they have in the past, the market could easily re-rate them to far higher valuations.
And when that happens, today’s beaten-down prices may look like the beginning of their next explosive run — one that could carry well into 2026 and beyond.
