Two top Canadian growth stocks have been battered this year, each for very different reasons. Yet both are now trading at valuations that can seem incredibly cheap in retrospect. If their fundamentals continue to advance, these stocks have the potential to skyrocket in 2026 and beyond.
1. Constellation Software: A rare compounder that resets for its next climb
Constellation software (TSX:CSU) is not typically a name associated with huge pullbacks. This is a company known for its disciplined acquisition strategy, remarkable capital allocation skills and enviable long-term investment track record. Yet even this market darling hasn’t been spared, with shares falling about 40% from their all-time highs before investors started getting back in.
Constellation’s entire business model is built around acquiring small software companies in the vertical market: companies with an established customer base and reliable, recurring maintenance revenue.
Constellation allows them to operate independently, maintaining their entrepreneurial spirit while providing the capital, support and expertise needed to scale.
This decentralized structure has created a flywheel effect: recurring cash flows are funneled into new acquisitions, which then generate even more cash, which in turn fuels even more acquisitions.
Over time, this cycle has produced powerful returns. Constellation has averaged an impressive return on equity of 24% over the past decade – an extraordinary figure for a company of its size and maturity.
After the recent correction, the stock looks unusually attractive. Constellation is trading around $3,383 per share and has a blended price-to-earnings (P/E) ratio of almost 25, a discount to expected earnings growth of about 20% per year over the next few years. Analysts’ consensus price target suggests the stock is over 31% undervalued, implying a near-term upside of around 46%.
If this blue chip compounder continues to execute on its proven strategy, the current pullback will ultimately be remembered as a rare buying opportunity.
2. goeasy: a comeback story with high growth and high returns
Although Constellation’s decline came as a surprise, easy (TSX:GSY) faced more dramatic pressure. A short-seller attack combined with a weak consumer environment sent shares plummeting nearly 46% from peak to trough. But now sentiment is starting to change – and patient investors can reap the rewards.
At approximately $126 per share, goeasy offers a robust dividend yield of 4.6%. The stock trades at an attractive blended price-to-earnings ratio of just 7.7, a roughly 35% discount to its long-term average valuation. That gap alone leaves room for as much as 53% upside potential in the near term if valuations normalize.
Management has demonstrated an unwavering commitment to shareholder returns. goeasy has increased its dividend for 10 consecutive years at an astonishing 30% compound interest rate. At the same time, the company has achieved an average return on equity of 23% over the past decade – incredible in the financial services industry.
Takeaway for investors
No one can predict exactly when these stocks will take off again. But both companies have proven business models, strong financial performance and a likely path to sustain double-digit growth over the long term. If they continue to perform as they have in the past, the market could easily revalue them to much higher valuations.
And if that happens, the current stock market declines could appear to be the start of their next explosive run – one that could extend well into 2026 and beyond.
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