Four Canadian Tech Stocks for your portfolio

ATB Capital Markets analyst Martin Toner’s recent report on technology stocks finds momentum continuing to build across the space. Toner said ATB’s Growth & Innovation universe of companies returned 3.6 per cent last week, despite four of the ten stocks in the group being down. And with growth-plus-profitability being key in today’s more discerning market, Toner says there are a number of Canadian names worthy of attention.

After more than a year of losses, tech investors are looking for some good news on a sector which has been in the doldrums since about last November. Over that stretch, the tech-heavy Nasdaq Index is down about 25 per cent, while in Canada the TSX Information Tech Capped Index is down about 31 per cent.

Toner says multiples across the technology space have “massively compressed,” since last November.

“While companies in the Growth & Innovation universe have rallied from their respective bottoms of 2022, stocks are still considerably off all-time highs. While the multiples seen over the past two years are no longer comparable, given higher rates, we believe current multiples remain attractive for investors,” Toner wrote in his December 4 report to clients.

Toner said Canadian tech companies such as Docebo, Shopify and Lightspeed remain his favourites, considering their strong growth prospects and improving profitability.

“[W]e believe growth and valuation upside will both be sources of shareholder return over the next two years. We remain confident that [these] companies can grow through the macroeconomic outlook,” he said.

On Shopify, Toner said the e-commerce company’s Black Friday/Cyber Monday weekend numbers were a positive, with a record $7.5 billion in sales for merchants on Shopify’s platform, representing a 19 per cent year-over-year increase, while there was also a 12 per cent uptick in number of customers purchasing from SHOP’s merchants. Toner said the consensus estimate for Shopify’s fourth quarter Gross Merchandise Volume growth is about 8.0 per cent.

“Results for e-commerce overall were not as strong but record shopping was seen, as Adobe Analytics reported that Cyber Monday sales were $11.3 billion, representing 5.8 per cent year-over-year growth,” Toner wrote.

Overall, Toner said while profitability appears to be paramount to investors in the current climate, high revenue growth can still overcome negative earnings in some cases. Toner said the Rule of 40 has been a strong measure of success for investors, where the rule calls for a company’s revenue growth rate and profit margin should be a combined 40.0 per cent.

“For companies like Docebo and Kinaxis who offer both growth and profitability, we believe valuations are still highly attractive. Docebo has seen ultra-high growth in the last few years and management believes a 30/10 split between revenue growth and EBITDA margins is possible. Kinaxis has sustained a roughly even 20/20 split, as the Company has displayed its ability to consistently deliver profitability,” Toner wrote.

Stock: Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials TSX:SHOP)

ATB Rating: Outperform

ATB Target Price: $75.00

Projected 12-month Return: 55.3 per cent

Stock: Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD)

ATB Rating: Outperform

ATB Target Price: $60.00

Projected 12-month Return: 223.0 per cent

Stock: Docebo (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO)

ATB Rating: Outperform

ATB Target Price: $90.00

Projected 12-month Return: 125.9 per cent