The S&P/TSX Composite Index, Canada’s broad stock market performance gauge, is up 5% year to date and remains on track to potentially exceed its 7.8% average annual return generated over the past 20 years. However, Celestica (TSX:CLS) stock has doubled during the same period, while goeasy (TSX:GSY) stock is up 16% so far this year. These two market-beating growth stocks have significantly outperformed the TSX and may continue to do so over the next 12 months. Let’s explore why CLS stock and GSY stock are still buys today despite their recent rallies.
goeasy stock: A growth machine easily gaining profitable advantages
Consumer loans provider goeasy is experiencing strong organic growth in its non-prime loan book, and its earnings margins have expanded early this year, propelling GSY stock to a substantial year-to-date performance that nicely beats the TSX. Moreover, goeasy stock could continue to outperform.
The alternative lender’s quarterly interest income hit a new record above $260 million during the first quarter, and total revenue growth of 24% year over year to $357 million remains persistently in the double-digit range. Goeasy continues to grow its loan book without sacrificing loan quality, and stock investors appreciate the 24.6% adjusted return on equity (ROE) the business generated during the past quarter.
Moreover, the company’s operating costs have remained relatively fixed as goeasy’s $3.9 billion loan portfolio experienced strong organic growth (up 29% year over year). Savvy investors refer to this welcome phenomenon as operating leverage. As a result, goeasy’s efficiency ratio improved from 27.4% a year ago to 33.1% during the first quarter of 2024, leading to improved operating margins.
Expanding profit margins make any stock more valuable, and GSY stock could generate more positive capital gains if organic growth persists over the next 12 months. Management expects an even stronger second quarter.
Is goeasy still a good growth stock to buy? Despite a fine 67% run over the past 12 months, GSY stock’s forward price-to-earnings (PE) multiple of 9.9 still looks cheap, and a forward price-earnings-to-growth (PEG) ratio of 0.6 indicates shares are potentially undervalued given the company’s earnings growth potential. A fairly valued stock has a PEG of 1, and values below this level may imply the presence of underpriced growth potential.
Investors in goeasy stock will receive growing quarterly dividends that yield 2.7% annually. goeasy raised dividends by 21.9% over the past year and could be a good buy in a dividend portfolio as well.
Is Celestica still a growth stock to buy after its recent 105% gain?
Celestica stock has generated an eye-popping 345% return during the past 12 months. The $9.4 billion company’s supply chain solutions for the semiconductor manufacturing industry have gained positive growth momentum given the wide adoption of artificial intelligence platforms globally. However, CLS stock still appears undervalued despite a fine run.
Celestica’s quarterly sales surged by 20% year over year to $2.2 billion during the first quarter, and the company could build on its recent revenue growth momentum to expand its earnings margins in 2024. The company converted 6% of its first-quarter sales into operating earnings, up from 3.2% a year ago. Sustained demand for its latest data centre switch gear, as companies upgrade their servers for “AI compliance,” could propel CLS stock further as the multi-trillion dollar artificial intelligence economy develops.
Although momentum is high for the stock, which has doubled so far in 2024, shares still appear somewhat undervalued. Celestica stock’s forward PEG multiple of 0.7 implies shares are undervalued relative to the company’s potential earnings growth. Bay Street analysts project a 25% annual earnings per share growth rate for Celestica stock over the next five years.
Should you buy CLS stock now? Celestica stock has rallied significantly over the past 12 months, and shares may be due for a near-term consolidation. Trading above $79 per share at the time of writing, the stock has overshot its average analyst price target of $71.15. A 10% correction isn’t too much to ask for a short-term trader who missed the rally. However, an increasingly profitable Celestica stock remains a good stock to buy for long-term growth-oriented investors, whose capital gains could be compounded by the company’s share repurchase programs.
