1 of Canada’s Better Growth Stocks Just Went on Sale

·3 min read
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Written by Joey Frenette at The Motley Fool Canada

These days, it’s hard not to be jittery with a recession looming, U.S. bank failures that happened so quickly, and inflation continuing to chip away at the purchasing power of cash.

Though the Fed may be finishing off its round of rate increases with a few more 25bps hikes sprinkled on top, there’s concern that the U.S. central bank remains a bit uncertain about where it’s going from here. Indeed, a dovish hike should have been a boon to markets. The fact that it wasn’t may suggest that the trajectory of rates may be outside of the Fed’s control as it continues to duke it out with elevated levels of inflation.

Fed talks, stock markets sag

In the battle between inflation and the Fed, I believe it is inflation calling the shots. Not the Fed. The only question that remains is whether the Fed is willing to compromise and allow inflation to run a tad hotter than 2%. For now, expect inflation numbers to generate waves in the markets. And with that, investors should be prepared to be a buyer of stocks while they plunge on hotter-than-expected results.

As the months pass, we’re bound to have inflation that’s both higher and lower than expected. That sets the stage for volatility in both directions. With cash on hand, you’ll be ready to take advantage of the next big inflation-driven fumble.

Aritzia: A Canadian growth stock that’s on sale

Currently, Aritzia (TSX:ATZ) stock stands out as one long-term growth stock that’s getting ridiculously cheap. For those unfamiliar with the name, it’s a women’s clothing firm that has performed quite well over the past year in spite of high inflation and fears of a looming recession.

As a mid-cap, Aritzia still has room to run as it builds its brand and wanders into new markets (think the U.S.). Given this, I view Aritzia as a potentially disruptive force that may be able to overcome macroeconomic headwinds as it seeks to leverage its brand power to gain more market share in the wild world of fashion.

Undoubtedly, retail is a hostile place to be when a recession strikes. Aritzia stock has already been punished severely, now off 33% from its peak, despite beating on the bottom line (in some instances, handsomely) for four straight quarters. Arguably, Aritzia has too much recession worry baked in.

At writing, shares of ATZ trade at 25.6 times trailing price-to-earnings. In my opinion, that’s not a high multiple to pay for such a promising up-and-comer that’s more than capable of producing double-digit percentage growth over the next 10 years and beyond.

Whether the robust Canadian brand becomes America’s next big brand, though, remains the million-dollar question. If Aritzia continues finding success in the states, watch out, as the stock could be right back to commanding a multiple beyond 30–35 times trailing earnings.

The bottom line for growth stock investors

Indeed, there will be bumps in the road. But at the end of the day, Aritzia has the tools it needs to move through hard times en route to better days. The fact that Aritzia has beaten forecasts in the face of a downturn suggests the brand is a lot stronger than the market thinks.

The post 1 of Canada’s Better Growth Stocks Just Went on Sale appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aritzia. The Motley Fool has a disclosure policy.