2 most battered Canadian growth stocks to buy right now
The stock market has been pretty nasty to high growth names, many of which have been severely punished through no fault of their own. Inflation fears have created an environment in which expensive high-growth and tech stocks are seen as rancid, especially those that lack profits. Growth stocks had their moment in the limelight, and now they are in decline. Crises often pave the way for accelerating technological trends. As such, I believe that many struggling Canadian growth stocks appear to be undervalued in the last round of overselling.
The combination of higher inflation and the disappearance of the favorable winds of a pandemic has led many to believe that the top has been reached by the darlings of the fastest growing tech. I think this is far from the case. In many cases, I suspect that the pandemic-induced acceleration of secular technology trends such as e-commerce could reward growing investors over the next several years. In the meantime, there will be pain, but such declines should be bought on the downside by young investors who want to outperform the market over the next decade and beyond.
Beaten Canadian growth stocks to watch
If you view the coronavirus crisis as a temporary tailwind for tech stocks, then of course the pullback is warranted. However, if you think that the crisis propelled the technological adoption of new tech in a few years, many freshly sold growth stocks are more like screaming buys. And in this article, we’ll take a closer look at three names that I think are bargains that could fully recover from the tech wreckage by the end of the year.
Enter the online learning game using AI Docebo (TSX: DCBO) and developer of supply chain management software Kinaxis (TSX: KXS), which are down 23% and 33% respectively from their peak levels.
If one company has benefited from a crisis-induced acceleration in the adoption of innovative technologies, it is Docebo. The LMS (Learning Management System) software company was little known in 2019. But now it has become a household name after winning many clients until 2020. The company has helped many of its clients with the overwhelming process of distance training of the workforce. As the pandemic ends, Docebo may lose some tailwind, but the growing adoption of LMS, I believe, will remain robust for years to come.
As Docebo stock has recently suffered a slight pullback, I would look to buy some stock before the next step. Docebo is growing at an absurd rate. While such growth is slowing on the other side of this pandemic, I still think it’s a mistake to drop the name just because growth is out of favor on Wall Street.
Kinaxis (TSX: KXS) has fallen drastically out of favor in recent months, despite posting decent reservation numbers and a surge in new client additions. With many supply chains around the world still in disarray (think semiconductors), demand for supply chain management solutions is expected to remain robust.
Management anticipates a drop in EBITDA margins of around 11 to 14%. I think the business can easily reach the higher end of the range as the business is looking to accelerate growth after a tough time. For a software-as-a-service company, Kinaxis stock is pretty cheap with just over 14x sales.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool service or advisor. We are Motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we’re posting sometimes articles that may not meet recommendations, rankings or other content. .
Silly contributor Joey frenette has no position in any of the listed securities. The Motley Fool owns shares of Docebo Inc. The Motley Fool recommends KINAXIS INC.