The Best of the Rest: 4 Canadian Growth Stocks With High Valuation Ratios

Stocks like CannTrust Holdings Inc (TSX:TRST) have considerable growth ahead of them, but are they good buys?

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Growth investment usually takes two distinct forms when it comes to investing in the TSX index: buying for future capital gains and buying for ongoing dividends. Among the best quality growth stocks to buy now, investors will find a spread of very diverse data, which includes a whole range of multiples, outlooks, track records, and other indicators of value, quality, and momentum.

Below you will find a few of the best growth stocks currently trading on the Toronto Stock Exchange, with a brief breakdown on whether they would suit a low-risk dividend portfolio.

Ballard Power Systems (TSX:BLDP)(NASDAQ:BLDP)

In terms of track record, Ballard Power Systems saw a negative one-year past earnings of -198.2%, though its five-year average past earnings growth has been positive at 13.3%. With a low debt level of 5.6% of net worth, it appears to be a healthy stock that can be held for the long term. The main draw is a 60.8% expected annual growth in earnings; however, with overvaluation in terms of assets signaled by a P/B ratio of 5.1, this non-dividend-paying stock would not suit a passive-income investor.

CannTrust Holdings (TSX:TRST)

A 43.4% expected annual growth in earnings and low debt level of 5.5% of net worth make CannTrust Holdings our Canadian marijuana pick for this list. It’s only real issue, though, is that it’s really not good value right now: look at that hefty P/E of 47.7 and bloated P/B ratio of 5.1.

What CannTrust Holdings does offer — besides high growth — is some decent momentum: a beta of 2.59 relative to the Canadian pharma industry and a share price that’s up 14.86% in the last five days to about double the future cash flow value shows a wildly oscillating ticker just right for capital gains investment.

Park Lawn (TSX:PLC)

A one-year past earnings growth of 8.1% trails the closest applicable industry, namely the Canadian consumer industry, which itself enjoyed an average growth in earnings of 25.7%. Meanwhile, Park Lawn’s five-year average past earnings growth of 20.6% is overall closer to the industry.

Park Lawn’s level of debt is nice and low at 16.5% of net worth, making this a stock that can be bought and held for the long term. However, the main issue with Park Lawn stock is that it’s not the best value on the TSX index: a P/E of 66.2 is too high, while a P/B of 1.5 is so-so. That said, a dividend yield of 1.9% paired with a high 48.3% expected annual growth in earnings adds to the appeal.

Wesdome Gold Mines (TSX:WDO)

Eyeing a gold stock for your TFSA? You may have seen that Wesdome Gold Mines is looking at a 46.4% expected annual growth in earnings, following on from a one-year growth in earnings 237.2% that trounced the Canadian metals and mining industry average as well as its in-house five-year average of 47.3%. However, it’s not a dividend-payer, and with a P/E of 49.6 and P/B of 3.8, it’s not attractively valued at the moment.

The bottom line

Value investors looking for growth stocks on the TSX index have a clear winner in this grab-bag of cheery tickers: Park Lawn. While the other stocks listed here do indeed have high growth ahead, they’re not suitable for a passive-income portfolio; investors looking for dividends in their respective industries will have to search farther afield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

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