Growth stocks are companies with the potential to grow their revenues and earnings faster than the industry average, often translating into superior long-term returns for investors. Due to this higher growth potential, such stocks typically trade at premium valuations and carry elevated risk, particularly as their business models continue to develop.
Meanwhile, Canadian equity markets have maintained their upward momentum, with the S&P/TSX Composite Index gaining 3.6% year to date as of January 21. Strength in metal prices and expectations of supportive monetary policy have improved investor sentiment and created a favourable environment for growth-oriented investments. Amid these conditions, let’s examine two growth stocks that have the potential to deliver outsized returns over the next three years.
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Celestica
After delivering an impressive 206% return last year, Celestica (TSX:CLS), a leading electronics manufacturing services provider, has maintained its upward momentum, rising a further 5.5% so far this year. Improving investor sentiment, supported by strong business fundamentals, appears to have driven the stock’s recent performance.
A key growth catalyst for Celestica is the accelerating adoption of artificial intelligence (AI). Companies are increasingly moving beyond pilot AI initiatives and embedding AI into their core strategies and day-to-day operations, while individuals are adopting AI tools to boost productivity. This rapid uptake has significantly increased demand for computing power, prompting hyperscale cloud providers to step up infrastructure investments – directly benefiting Celestica’s product demand. In parallel, the company continues to expand its product portfolio with innovative offerings such as advanced networking switches and next-generation storage solutions, further strengthening its competitive position and market share.
Supported by these favourable trends, management expects robust financial growth to continue. Revenue and adjusted earnings per share (EPS) are projected to grow by 26.4% and 52.1%, respectively, in 2025, followed by additional growth of 31.1% in revenue and 39% in adjusted EPS in 2026. The company also expects to generate strong free cash flow of approximately $425 million in 2025 and $500 million in 2026, underscoring the strength of its operating model.
Despite its substantial recent gains, Celestica’s shares continue to trade at more than a 16% discount to their November highs. The stock currently trades at NTM price-to-sales and price-to-earnings multiples of 2.3 and 39.7, respectively. While these valuation levels appear elevated, they are supported by the company’s superior growth outlook and solid financial performance, making Celestica an attractive growth stock at current levels.
5N Plus
Another growth stock that I believe has the potential to deliver superior returns in the coming years is 5N Plus (TSX:VNP), a producer of specialty semiconductors and performance materials. After generating an impressive 140% return last year, the stock has continued its upward momentum, trading 6.6% higher year to date. Strong quarterly performances, combined with the rapid expansion of the global semiconductor market, have supported the company’s share price appreciation.
Looking ahead, management remains optimistic about sustained demand for its specialty semiconductors, particularly from customers in terrestrial renewable energy and space-based solar power markets, who increasingly require advanced materials from reliable, long-term partners. Backed by an expanded sourcing network and well-established manufacturing capabilities, 5N Plus enjoys a competitive advantage, positioning it well to capitalize on these secular growth trends. As a result, I expect the company’s financial performance to continue improving, further supporting its stock price.
Despite its substantial recent gains, 5N Plus currently trades at approximately a 16% discount to its November highs. The stock also appears reasonably valued, with NTM price-to-sales and price-to-earnings multiples of 2.9 and 22.9, respectively. Given its solid growth outlook and attractive valuation, I believe 5N Plus is well-positioned for continued growth and the potential to deliver superior returns over the coming years.
