Growth investing is one of the most popular ways to grow one’s wealth aside from buying up dividend stocks. With tech being one of the biggest growth sectors on the TSX Index, let’s take a look at three of the best Canadian stocks to buy now, ranging from software to cloud-based services. They’re selected for their high expected annual growth in earnings, as well as their future return on equity.
Solium Capital (TSX:SUM) A super-powered tech stock if ever there was one, Solium Capital outperformed the Canadian software market in the last 12 months, at 81.2% vs. 17.6%. They offer cloud-enabled services for administration, financial reporting, and compliance related to equity-based incentive plans in Canada, the United States, and internationally.
With no change in share price over the last five days at the time of writing, Solium Capital’s nevertheless leapt in mid-February and has refused to back down, making for a noteworthy upward trend. Its one-year past earnings growth of 45.9% is significant and shows a strong current trend toward growth.
With a low level of comparative debt at just 7.4% of its worth, Solium Capital is a low risk bet; however, it’s not fairly valued at present, with a high P/E ratio of 163.9 times earnings, and a P/B of 5.2 times book. What got it on this list, though, is a significant 62.5% expected annual growth in earnings over the next one to three years.
OpenText (TSX:OTEX)(NASDAQ:OTEX) This popular tech stock saw returns of 13.3% over the last 12 months that just trailed the software industry; however, its track record is solid, with one- and five-year past earnings growth rates of 37.9% and 12.1%, respectively. While it’s better valued than the last stock, with a P/E of 39 times earnings and P/B of 2.7 times book, it could be cheaper.
The rest of its stats are a bit mixed, too; while a dividend yield of 1.59% is on the table, and a 30.3% expected annual growth in earnings shows a positive future performance, OpenText’s past-year ROE of 7% is on the low side. However, its balance sheet could be healthier, weighted by debt at 69.1% of net worth.
Constellation Software (TSX:CSU) This top TSX index tech stock saw past-year returns of 33.9% that beat its peers’ average for the same period. An expected return on equity of 67.8% over the next three years is the key characteristic to watch here, as a 8.9% expected annual growth in earnings is only marginally positive (though that figure would be considered healthy in a banking stock).
With one- and five-year past earnings growth rates of 70.9% and 24.5%, plus a past-year ROE of 44%, Constellation Software is all about performance. Its level of debt compared to its net worth has been reduced over the past five years, from 179.5% to 42.5% today, and while it’s overvalued (see a P/E of 49.3 times earnings and high P/B of 21.6 times book), its dividend yield of 0.45% makes for a deal-sweetener.
The bottom line Growth investors may want to bet on outperforming tech stocks, such as Solium Capital. OpenText insiders been shedding shares in the last three months in considerable volumes, with this kind of selling being notable over the last 12 months, so a low-risk TSX index investor may want to take note of that.
Meanwhile, Constellation Software is a high-quality option for a longer-term investment.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Solium Capital and OpenText are recommendations of Stock Advisor Canada.
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