It only takes a couple of big stock winners to create a life-changing amount of wealth.
For example, if you put $10,000 to work in a small-cap stock like Hammond Power Solutions (TSX:HPS.A) five years ago, it would be worth $161,799 today!
Hammond is hardly an exciting business. It manufactures power transformers. However, this family-owned business has executed its growth strategy seamlessly.
Who would have thought that artificial intelligence, data centres, and electric vehicles would cause a surge in demand for transformers globally?
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Find stocks like Constellation Software in their early growth phase
Another classic example is Constellation Software (TSX:CSU). If you put just $10,000 in this stock 15 years ago, that investment would be worth over $1.2 million today!
Constellation was executing a very simple, yet intelligent strategy. It was consolidating small, cheap vertical market software businesses around the world.
It continues to do the same today, just at a significantly larger scale. Its formula is to acquire many businesses, maximize free cash flow, and re-invest into more businesses.
Today, it has a market cap of $95 billion. Returns might start to regulate given the law of large numbers. However, this company seems to always exceed expectations, so I suspect management will continue to be thoughtful about its growth strategy.
These are the types of stocks you want to find in the early stages of their growth trajectory. The great news is that life-changing returns are not just restricted to small cap stocks. Just look at the incredible returns Nvidia has returned in the past few years.
The point is that big winners come in all shapes and sizes. An investor’s job is to survey the market and find those opportunities that could really amplify your investment. If you are wondering about some Canadian stocks that could do that in the future, here are two to think about today.
A fast-growing fintech stock
Propel Holdings (TSX:PRL) is one of Canada’s fastest growing companies. Over the past three years, revenues and earnings per share have respectively increased by a compounded annual growth rate (CAGR) of 55% and 57%!
The fact that earnings per share have risen at a faster rate than revenues indicate the operating leverage in its business. Propel offers specialized loans to the non-prime consumer segment.
It uses a proprietary A.I. lending platform to underwrite its loans quickly and effectively. The platform allows the software company consolidator to scale very quickly.
A recent acquisition in the U.K. could create a new growth platform in Europe. I suspect it won’t stop there and that is why it is an intriguing stock to buy for the long run.
A software consolidator in the healthcare space
Another Canadian stock that looks intriguing as a long-term investment is VitalHub (TSX:VHI). The company operates a mix of software companies focused on the healthcare industry. Given the demands on present healthcare systems, demand for software that creates efficiencies and better patient outcomes should only increase.
VitalHub’s revenues have increased by a 40% CAGR over the past three years. Earnings before interest, tax, depreciation, and amortization (EBITDA) have risen by a 90% CAGR.
The company has hit a threshold where it is generating strong cash flows. That is complimented by the fact that it has a strong acquisition pipeline which will compliment organic growth.
The biggest problem is that this stock is very expensive today. It just raised some equity recently, but if it were to pullback even more, it could be a good long-term addition.
