SHOP:CC - 2 Tech Stocks That Could Go Parabolic

2024-02-05 21:30:00 ET

The allure around most tech stocks is the potential for such technology companies to go parabolic over time. Looking at many of the top tech players in the U.S., investors will notice quite a few charts that reflect a parabola, more or less.

In Canada, the options are significantly reduced. But there are two companies I think fit this bill, both historically and potentially on a forward-looking basis. Let’s dive into why these long-term top performers may continue their streak and why their compounded returns for investors over time may continue.

Shopify

Shopify ( TSX:SHOP ) is well-known as a leading e-commerce platform provider for businesses of all sizes. The company operates via two segments, merchant solutions and subscription services, each of which have seen incredible growth rates over time.

Of course, much of Shopify’s incredible growth through to 2021 was a direct result of the pandemic. Businesses across the world were struggling to stay afloat, looking to set up online shops to remain in business.

While many of these companies may have wound down operations or at least shifted their focus to their brick-and-mortar stores, an incredible number of Shopify users retained their accounts. One could argue that many of the pandemic tailwinds still continue today, with business owners more likely to operate via a multi-channel business model than ever before.

Shopify’s recent results show that this is a tech company that’s still growing at a market-beating rate. The company’s gross profit of $901 million came in 36% higher on a year-over-year basis. On an overall revenue basis, this number topped out at more than 50%. That’s a compelling basis for a growth investor to work off of.

Shopify’s total transaction volume continues to grow, with purchases on Shopify’s platform accounting for 2% of retail sales in North America and an impressive 0.5% of global market online transactions. As long as these numbers continue in the right direction, Shopify is a tech stock worth buying for its growth potential right now.

Constellation Software

Constellation Software ( TSX:CSU ) is another prominent Canadian tech giant that focuses on developing and customizing software for private and public sector makers. The company’s portfolio of businesses serves different markets but also provides investors with a differentiated software option in the tech world, which can be hard to come by.

Constellation’s long-term growth rate has been impressive and is reflected in the chart you see above. Investors can zoom out and look at nearly any time frame and see the kind of up-and-to-the-right chart that’s most sought after in this space. That’s mostly due to Constellation’s business model of acquiring smaller software companies at a reasonable price and growing its return on invested capital at an impressive success rate over time.

Constellation has recently done some notable balance sheet cleanup worth considering. The company successfully revised and reworded its current credit facility arrangement. The cap on the facility has risen from $840 million to $1.08 billion, involving a consortium of both existing and novel institutions. Notably, the contract has transitioned from a secured to an unsecured facility framework, maintaining its usability for general corporate needs, such as acquisitions and working capital.

This additional capital flexibility could conceivably lead to additional acquisitions over time. Given the fact that this is Constellation’s bread and butter, investors have to like what they see.

Bottom line

Indeed, both Constellation Software and Shopify are among the top Canadian tech stocks investors may want to consider on any dips moving forward. Shopify remains well below its peak, so this is an easy stock to consider at current levels. However, Constellation has seen fewer dips, making this a more difficult stock to get at a bargain valuation.

That said, these stocks continue to trade at a premium for a reason. Those looking for parabolic growth on the TSX ought to consider these stocks right now.

The post 2 Tech Stocks That Could Go Parabolic appeared first on The Motley Fool Canada .

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy .

2024