This holiday shopping season is a dud. Consumers are being squeezed by low wages and high inflation. That puts consumer brands in jeopardy. However, other sectors of the economy are holding up better than expected. If you’re looking to shop, here are the three growth stocks that are on discount this holiday season.
Year-end sale #1
Constellation Software (TSX:CSU) has rarely been on discount for too long. Over the course of its 16-year history as a public company, Constellation has rarely had a year with negative returns. 2022 is one of those rare years.
The stock is down 9.8% year to date. That’s marginally worse than the benchmark index. It’s been caught up in the global tech selloff. However, investors must recognize the fact that Constellation isn’t a money-burning startup but a well-established enterprise software conglomerate.
Half of the company’s subscribers are government entities. That makes Constellation’s revenue base much more robust. This year, the team has doubled down on its growth-via-acquisitions strategy. The company has spent more on purchasing software firms in the first half of 2022 than it did in all of 2021.
I expect these recent acquisitions to boost the company’s bottom line soon. Meanwhile, the stock is on discount for growth investors.
Year-end sale #2
Topicus (TSXV:TOI) is another discounted tech stock. After its spin-off from Constellation Software last year, the stock has delivered just 14.6% in total returns. Year to date, it’s down 32.5%.
However, the company continues to accumulate small- and mid-sized software startups just like its former parent company. Topicus deployed €43.6 million, or CA$61 million, in acquisitions during the third quarter of 2022. These acquisitions should expand cash flow in the years ahead.
Meanwhile, the company is experiencing steady organic growth, too. Cash flow from current operations (CFO) was up 29% year over year in the most recent quarter. Altogether, the company generated €155 million, or CA$216 million, in CFO during the first nine months of 2022.
Based on recent results, the company seems undervalued. Topicus stock is trading at roughly 24 to 26 times the annual cash flow from operations. Given its growth rate and business model, I believe this is a bargain.
Year-end sale #3
Aritzia (TSX:ATZ) is an unlikely candidate for this list. In the midst of record-high inflation and growing unemployment, it’s difficult to see how a luxury apparel brand is a good pick for investors.
However, Aritzia’s sales have been remarkably robust, despite the headwinds. Also, much of its growth is based on its expansion of store locations in the United States. The company registered 79.8% growth in U.S. revenue this past fiscal year.
In 2023, nearly all the new stores the company opens will be south of the border. In fact, the company expects total sales to exceed $3.8 billion by fiscal 2027. Meanwhile, the stock is down 4% year to date and is trading at 33 times net income per share. It’s arguably undervalued.
If Artizia can maintain its brand appeal with young consumers and weather the storm of this recession, it could be an excellent long-term growth story. This Christmas could be the perfect time to add this stock to your shopping list.
