Many popular growth stocks have fallen more than 20 percent or more over the past few weeks. However, assuming a company’s business is intact, volatility over the short term could turn into long-term wealth if investors keep a level head.
If you’re trying to take advantage of this drop with some cash on the side, I will be going over three Canadian growth stocks that are the most likely to bounce back and these growth/ dividend stocks have the potential to deliver significant upside if you are a long-term investor.
One of the best Canadian growth stocks to buy over the last few years has been Shopify. And now, after it’s sold off significantly and is currently trading 50% off its 52-week high, the stock certainly looks like it could be undervalued. Looking at several metrics, it’s clear that Shopify hasn’t been this cheap since the pandemic began.
The company’s trailing price-to-sales (P/S) ratio is below 20 times for the first time since March 2020. In addition, its forward P/S ratio is now below 25 times for the first time since the pandemic began. So it’s clear that the massive premium that Shopify has traded with over the last few years has been eroded in the recent volatility.
That means if you’re looking to gain exposure to the e-commerce giant, now is an excellent time to buy. Although the pandemic’s impact on the company’s growth may be easing, Shopify’s gain during this period has already placed it several years ahead of where it would otherwise be. In just over two years, its sales and gross profit have increased by more than four times.
While in 2018, the company was yet to earn free cash flow; by contrast, Shopify has made $500 million in free cash flow in the last four quarters. And because of all the potential e-commerce still offers, it has a long runway for more growth. Therefore, if this volatility continues, Shopify is undoubtedly one of the best Canadian growth stocks to buy now.
Canadian Imperial Bank of Commerce (CM.TO)
Another safe stock to put in your portfolio is the Canadian Imperial Bank of Commerce. The top bank stock typically pays a better yield than its peers, and at 5.4%, it offers a higher payout than Fortis. When the stock was struggling early in 2020, its yield was more than 7%. But even at its current yield, it’s rare to land a stock that offers this good a payout outside of a global pandemic.
Unless you are convinced of another market crash coming soon, chances are this might be the best yield you’ll be able to lock in for CIBC for some time. While anything above a 5% yield can be risky, in CIBC’s case, that’s more to do with the downwards sentiment surrounding the economy and investors ditching financial stocks last year. Over the long haul, this can be a solid investment that you can buy and forget about while the dividend income rolls into your account.
Goeasy shares have dipped substantially, shedding about 25% of its worth, given that it hit an all-time high last year. Investors are concerned about the impact of rising interest rates and their influence on Goeasy’s growth. However, these fears are currently priced in. Goeasy has carved out a niche as a specialty financing firm supplying loans to consumers under Easyhome and Easyfinancial.
The firm also supplies lease-to-own solutions like automobile finances and residence equity car loans. These alternative lenders have filled the gaps left by other banks in Canada’s economy. By targeting newcomers, younger borrowers, and people with a lacklustre credit history, Goeasy has captured a segment of the market that could be lucrative if risks are managed appropriately.
The company’s out-performance stems from investors taking note of the underlying core business that has continued to deliver. Revenue and profitability have grown by a double-digit rate over the few years. In the most recent quarter, Goeasy’s loan portfolio grew by 60% to $1.90 billion, with adjusted earnings increasing 48% to $6.7 billion. Earnings per share increased 35% to highs of $2.70.
Alternative lenders like Goeasy are risky. In an environment where interest rates rise, their customers could be more prone to default than traditional banks. However, Goeasy has a track record of managing this risk appropriately. Meanwhile, its stock is trading based on the worst-case scenario. That would make it an ideal bet for an investor with a little risk appetite.