Growth stocks generally trade at a premium or at expensive valuations. However, there are always exceptions to a rule, which means sometimes you can find growth stocks that are trading at a lower multiple with significant upside potential. We’ll look at three such companies on the TSX that you can buy right now for market-thumping returns.
The first stock on the list is Barrick Gold (TSX:ABX)(NYSE:GOLD), a Canada-based gold mining company. The recent weakness in gold prices has meant Barrick Gold stock has lost almost a quarter of its market cap since September.
Further, Warren Buffett’s Berkshire Hathaway also reduced its stake in Barrick Gold by 42% in Q3, which might have exacerbated this decline. However, there are multiple drivers for gold prices to move higher in the upcoming decade, including a low-interest-rate environment, a weak U.S. dollar, as well as global uncertainty due to COVID-19.
This makes Barrick Gold and peer mining companies a solid bet for contrarian and growth investors. This stock has a market cap of US$41 billion, indicating a price-to-sales multiple of 3.3. Its price-to-earnings ratio is also reasonable at 22 given analysts expect the company to increase earnings at an annual rate of 35.7% in the next five years.
Wall Street has a 12-month average target price of US$34.4 for Barrick Gold, which is 48% higher than its current trading price. Total returns will be closer to 50% given its forward yield of 1.5%.
Another TSX growth stock that has lost momentum recently is Real Matters (TSX:REAL). The stock fell 8% yesterday possibly after it reported fiscal Q4 results of 2020 on Friday. The company’s earnings per share of $0.18 were 5.3% below analyst estimates of $0.19. However. the recent dip makes the stock attractive.
Real Matters is a network management services platform for the mortgage and insurance industries. In Q4 of fiscal 2020, the company’s sales were up 16% year over year. Analysts expect sales growth to accelerate by 30.6% in 2021 to US$211.65 million and rise by 13.3% in 2022 to US$240 million.
This means the stock is trading at a forward price-to-sales multiple of 6.33 and a price-to-earnings multiple of 19.6. Comparatively, its earnings growth is forecast at an annual rate of 57% in the next five years. Analysts have a 12-month average target price of $27.2 for Real Matters, which is 33% above its current trading price.
When it comes to growth stocks, it is difficult to ignore Shopify (TSX:SHOP)(NYSE:SHOP), which is also the largest Canadian company in terms of market cap. Shopify stock has more than doubled in 2020 and is trading at a lofty price-to-sales multiple of 42.
However, the company is well poised to beat the market in the upcoming decade as well. The e-commerce sales in the U.S. accounts for just 16% of total retail sales, and this number will move higher in the long run. There is ample scope for international expansion, as the e-commerce trend is beginning to accelerate in other markets as well.
The recent pandemic has helped Shopify to almost double its sales in the last two quarters, and a solid holiday quarter will mean sales growth in 2020 will be north of 80%.
Analysts have a 12-month average target price of US$1,123 for Shopify, which is 15% above its current trading price.
The post 3 TSX Growth Stocks Trading at a Discount of up to 50% appeared first on The Motley Fool Canada.
Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Shopify, and Shopify. The Motley Fool recommends Real Matters Inc and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares). Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.
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