Investors who are in the quest for the best growth stocks should consider companies that have a proven expansion strategy. Indeed, growth-by-acquisition plays have proven their value over time for long-term investors.
Two such companies I think fit the bill perfectly on the TSX today are Lightspeed POS (TSX:LSPD)(NYSE:LSPD) and Constellation Software (TSX:CSU). Over the long term, these high-growth stocks certainly have proven their potential.
Here’s why I think that outperformance could continue and investors should consider putting these stocks in their TFSA today.
Ask anyone who has held shares of Constellation Software for the past decade. They would tell you how this growth gem has turned a relatively meager investment into quite a sizable one in a relatively short amount of time.
Indeed, Constellation’s track record is truly incredible as far as TSX growth stocks go. Indeed, for those who believe the company can continue growing at a similar pace moving forward, this is a top TFSA pick for sure. Investors who are able to shield the capital appreciation of such stocks from capital gains taxes will be grateful for doing so.
In the case of Constellation, I don’t think this ship has sailed. Indeed, the company still has ample room for growth. This company’s aggressive growth-by-acquisition strategy continues to be a perfect fit in a relatively fragmented software space today. There are thousands of potential targets for Constellation to pursue. Accordingly, given the prudence exemplified by the company’s management team over the years, investors can sleep well at night knowing Constellation’s M&A team is picking the best acquisitions with the most potential long-term growth upside.
That’s pretty decent. I mean, most stocks have recovered to pre-pandemic levels. However, few have provided this level of upside.
Indeed, it appears the company’s growth-by-acquisition strategy has struck a chord with investors. Lightspeed’s past earnings are a reflection of the success of this company’s strategy. Indeed, the company posted a revenue growth rate of 80% — a growth rate many companies dream of right now.
Indeed, the comparison can be drawn between Lightspeed and Constellation on the consolidation front. Both companies operate in highly fragmented industries. Both are acquiring heavily, and reaping some impressive returns for shareholders.
That said, Lightspeed doesn’t yet have the track record of Constellation. The company will need to prove these acquisitions were profitable over time. Thus, I see a higher level of risk in Lightspeed stock today on a relative basis.
That said, both companies have business models investors seem to want today.
Like these top growth picks? Here are 10 more to consider right now:
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software. The Motley Fool owns shares of Lightspeed POS Inc.