2 Rapidly Growing Canadian Tech Stocks With Lots More Potential

Written by Joey Frenette at The Motley Fool Canada

The Canadian stock market isn’t exactly filled with fast growers and euphoric artificial intelligence (AI) plays. That said, some worthy tech stocks on this side of the border are more than investable. Arguably, the valuations of Canada’s top growers are even more attractive than those of the United States. Of course, it can be pretty difficult to evaluate shares of a high-growth company, especially one that hasn’t yet made the shift into profitability.

Undoubtedly, it’s one thing to keep sales growth elevated for a lengthy period of time. But it’s another to make meaningful progress on the margins front, especially since younger growth firms can and should be going heavy on capital expenditures to maximize revenue growth.

Indeed, growth stocks have been quite impressive performers in the past decade. However, only time will tell if they can still outshine the value names out there. If you pay too high a price for high-growth companies, you could still land returns that are less than stellar. That’s why investors shouldn’t go all-out on growth while neglecting the boring “cheap” stocks.

Once the tides turn, perhaps value plays will be able to make up for lost time. In any case, there are stocks that one could technically classify as both “growth” stocks and having a great value proposition. Notably, the types of growth companies that also happen to be wildly profitable, with the means to improve margins over the long run.

Enter shares of Canadian tech firms Celestica (TSX:CLS) and Constellation Software (TSX:CSU), two fast-rising stars in Canada’s underrated high-tech scene.

Celestica was a relatively small tech firm that has mostly flown under the radar of investors. That is until the stock skyrocketed more than 750% in the past two years. Indeed, if you held the name, congratulations, you’ve bagged one of Canada’s biggest mid-cap (it’s a large-cap now) winners. Moving ahead, I think the firm can keep winning.

With the stock surging another 5.2% during Thursday’s session, many shareholders may wonder if it’s time to hit the sell button. I’m not against booking some profits, but for a firm that’s still trading at less than 20 times forward price to earnings (P/E), I can’t say the stock is remotely overvalued. It’s profitable and could keep growing earnings at a scorching rate.

With management upbeat about the new year, CLS shares will be a tough sell, especially if the firm can keep scoring significant quarterly beats.

Constellation Software is quickly becoming a must-watch high-tech blue chip on the TSX Index. With a winning growth formula (merger and acquisition driven) that could be given a jolt as interest rates fall off and acquisitions become more common, a strong case could be made that CSU stock is worth an even higher multiple.

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