KXS:CC - Got $5000? These 2 Growth Stocks Are Smart Buys
2024-01-25 21:15:00 ET
Got $5,000 kicking around that you’re eager to invest? If so, you may want to take a look at quality Canadian growth stocks. U.S. growth stocks, especially in the tech sector, have been bid up to extreme highs. Thanks to the AI “arms race” that is currently taking place, investors are willing to pay high prices for companies perceived to be “AI winners.” That includes most of the U.S.’s ‘Magnificent Seven’ stocks. Tech stocks in other countries are very frequently cheaper than the big U.S. names. It’s also worth mentioning that there are growth stocks in sectors other than tech – yes, they exist! In this article, I will explore two growth stocks that could be worth investing $5,000 into, including one tech stock and one non-tech stock.
Kinaxis
Kinaxis Inc ( TSX:KXS ) is a Canadian tech company that has been doing some incredible growing lately. In the most recent 12-month period, it grew at the following rates:
- Revenue: 22%.
- EBIT (operating income): 28%.
- Earnings per share (EPS): 63%.
- Operating cash flow: 63%.
In addition to these strong trailing 12-month (TTM) growth rates, Kinaxis’ expected growth in the year ahead is also very good. Revenue is expected to grow at 28%, while free cash flow (FCF) is expected to grow at 74%.
Why is Kinaxis growing so much?
For one thing, it has a very strong competitive position. Rapid Response is the only platform that does exactly what it says. Some SAP products offer some of the same features, but not all of them. I have some reason to think that Rapid Response is irreplaceable and essential for supply chain managers. A friend of mine who works in manufacturing says that she uses the app every day at work, and cannot think of an app that could replace it. This “word of mouth” stuff is not exactly the most scientific, but it’s something to go off of.
KXS is a known leader in AI among Canadian tech companies. It uses AI to help businesses forecast key supply chain variables like inventory, inputs, and customer buying patterns. Thanks to Kinaxis’ AI, managers can now forecast these kinds of variables in mere seconds. Never before possible!
The catch here is that Kinaxis stock is not cheap. Trading at 67 times earnings, 8.3 times sales and 7.5 times book value, it’s actually rather pricey. However, if the company’s earnings and free cash flow grow at the rate they are expected to, KXS will someday look like it was cheap at today’s prices.
Alimentation Couche-Tard
Alimentation Couche-Tard Inc ( TSX:ATD ) is a Canadian gas station company. Its shares have a mix of value and growth characteristics, trading at 19 times earnings and 0.81 times sales despite EPS having grown at a 16.4% CAGR over the last decade. The earnings growth rate has declined slightly: at a 14% CAGR in the trailing 5-year period, and 12% in the last 12 months. Still, those growth rates are above average for the TSX as a whole.
Alimentation stock is sort of an indirect oil play . It sells gas, but it also sells consumables like chips, cigarettes and lottery tickets, so it’s not as volatile as pure play oil stocks . The company is financially responsible, using retained earnings rather than large amounts of debt to finance future growth. On the whole, it is a quality growth stock worth owning.
The post Got $5,000? These 2 Growth Stocks Are Smart Buys appeared first on The Motley Fool Canada .
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Kinaxis. The Motley Fool has a disclosure policy .
2024