In this edition of ‘Stock Teasers’, we are going to be looking at Canadian stock outliers using a unique screener in each edition. The screeners have two main variables, of which will change each time, and the end goal is to find a group of stock outliers on the graph and identify why they might be outliers.

Canadian Stock Outlier Screener

Below, we have used the following variables across the Canadian stock universe: 5-year forward revenue estimates CAGR and 5-year forward EPS CAGR. Both variables are relatively self-explanatory, as we are looking at the compounded annual growth rate (CAGR) over the next five-years for what analyst’s estimate are for revenue and EPS growth. A combination of a high growth CAGR in EPS and revenue can be indicative of a stock’s future growth potential.

We have outlined a set of stocks below that we have identified as ‘outliers’ on the scatter plot and drew special notice to one major outlier. This green-shaded area indicates stocks that offer a combination of sales and EPS growth potential for the future.

Let’s take a closer look into some of the stocks which encompass this section of the graph. We can see The Descartes Systems Group (DSG), GFL Environmental Inc. (GFL), Cameco Corporation (CCO/CCJ) are in this area. We also drew attention Shopify Inc. (SHOP) indicated by the green arrow as it is such a huge outlier relative to the rest of the companies.

A brief commentary on recent performance and an overview of what these companies do that may be driving these outlier growth estimates:

The Descartes Systems Group (DSG): Provides cloud-based logistics and supply chain solutions worldwide. DSG has been able to display organic resilience despite tough macroeconomic conditions which offset lower transaction volumes in recent earnings. DSG is a fundamentally strong company but is sensitive to the macroeconomy and should grow nicely once these headwinds subside.  

GFL Environmental Inc. (GFL): Offers non-hazardous solid waste management and environmental services in Canada and the United States. GFL operates with a playbook of growing through acquisitions with a leveraged balance sheet, by consolidating small players in one industry (waste management). This strategy is usually referred to as a “roll-up”. GFL’s CEO has demonstrated a decent history of execution in the last few years, with 5-year revenue growth of around 18% and sales up 10x since 2015. Forecasts likely expect GFL to continue to reinvest heavily into growth, but investors should understand that the company will need to carry and manage the resulting debt load effectively.  

Cameco Corporation (CCO/CCJ): Provides uranium for the generation of electricity. There is high market sentiment regarding the future of nuclear energy which relies on uranium production that will benefit CCO. If more energy producers and others shift to nuclear energy, the price of uranium should continue its climb, and CCO’s revenue and EPS will increase as a result. CCO’s margins have also been improving and free cash flows are strong. Forward growth is likely tied to future demand driven from nuclear energy.

Shopify Inc. (SHOP): Is an e-commerce platform that enables individuals and businesses to create and manage online stores, sell products, and handle payments. SHOP feeds into many market trends today with the company’s product offerings featuring a capital-light business model operating largely as a software company that charges a subscription and offers payment solutions. SHOP is one of the top success stories among Canadian stocks with a strong platform for growth.

Common Theme Among Canadian Stock Outliers

We hope that readers enjoyed this edition of ‘Stock Teasers’ talking about some of the Canadian stock outliers for 5-year revenue and EPS growth estimates. A common theme among the stocks we highlighted is the valuation for all these companies is expensive due to the high investor sentiment surrounding all of them. The cheapest of the four names mentioned was GFL trading at nearly 40x forward earnings. So, although all these stocks are forecasted to have bright futures, investors should understand that they are going to have to pay up to be a part of it. For other editions of our ‘Stock Teasers’, check out this latest blog on Stock Market Gems from /r/CanadianInvestor!

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