Whereas Canadian know-how shares have seen spectacular development over the past decade – notably in the course of the pandemic—they continue to be a comparatively small slice of the Toronto Inventory Alternate.
Now we have numerous nice Canadian dividend shares, Canadian financial institution shares, Canadian power shares, Canadian utility shares, and so forth.
However tech shares account for simply 8-9% of our publicly traded market, based on the FTSE Canada All-Cap Index. To place that into perspective, the monetary sector dominates at round 34%, and power contributes about 17%. South of the border, the distinction is putting: U.S. tech shares make up a staggering 34% of the market by total capitalization, claiming the biggest sector share of their much more diversified S&P 500 index.
Whereas my private funding technique leans closely on Canadian dividend shares, there is no such thing as a query that some of us have made some huge cash by investing in tech shares solely over the previous couple of years. Most tech shares, nevertheless, match firmly within the “development” class reasonably than “worth.” This contrasts with the dependable, income-focused investments present in Canadian blue chip shares and dividend kings.
It’s additionally not like Canada presents a ton to select from on the tech facet of issues as effectively. You’re not going to search out any Nvidias or Microsofts hanging round. That stated, we needs to be pleased with the tech firms we’ve got, as they’re really higher than what numerous the remainder of the world (USA excepted clearly) is placing on the market as of late.
Canadian Tech Shares Efficiency Chart
This chart was created by Mike Heroux at Dividend Shares Rock – our go-to supply for Canadian investing data.
High 6 Finest Tech Shares to Purchase in Canada
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1) Constellation Software program (CSU)
While you consider Canadian know-how shares, it’s arduous to miss the function of Constellation Software program Inc. (CSU). As Canada’s second-largest tech inventory, trailing solely Shopify, Constellation has carved out a novel area within the tech world. This isn’t your typical story of a high-growth startup; as an alternative, it’s about an organization that has persistently delivered worth by considerate acquisitions, operational excellence, and a methodical strategy to enlargement.
With roughly 45,000 staff and a market capitalization of about $100 billion, Constellation Software program is way from being a speculative “tech inventory on the verge of breaking out.”
Constellation Software program’s success isn’t a story of revolutionary merchandise or flashy branding. It’s a narrative of how a founder-led firm mastered the artwork of buying and bettering software program companies. The corporate has developed experience throughout dozens of merchandise, encompassing over 1,000 software program manufacturers. This expansive portfolio is organized into six key working teams, every targeted on optimizing companies inside its area.
By buying software program companies with area of interest market dominance, Constellation creates worth by bettering operational effectivity, leveraging synergies, and making use of its confirmed administration playbook. This methodology has yielded exceptional returns, averaging over 30% yearly since 2006, making CSU a long-time darling of growth-focused traders.
Not like many tech firms that rely closely on debt to fund development, Constellation takes a extra conservative strategy. By utilizing free money movement as its major funding supply, the corporate maintains a robust monetary place, even in periods of financial uncertainty. This technique could imply barely slower development in comparison with extra aggressive opponents, but it surely presents vital benefits in in the present day’s high-interest-rate surroundings.
Actually, Constellation’s strategy positions it to reap the benefits of business downturns, scooping up undervalued belongings when different firms are constrained by rising borrowing prices. This self-discipline has helped the corporate climate market volatility whereas persevering with to develop
Constellation does provide a dividend, however don’t count on it to be the principle attraction. With a present yield of round 0.12%, the dividend is extra symbolic than income-generating. This isn’t an organization targeted on returning money to shareholders—it’s laser-focused on reinvesting in development.
That stated, this technique is sensible for Constellation’s enterprise mannequin. Balancing aggressive acquisitions with low debt ranges leaves little room for substantial dividend payouts. As a substitute, shareholders profit from the long-term capital appreciation generated by the corporate’s disciplined development strategy.
2) Descartes Techniques (DSG)
Descartes Techniques is a provide chain options firm primarily based out of the Mecca of tech in Canada – Waterloo, Ontario. It’s really a reasonably outdated firm (possibly historical by tech requirements) having been based in 1981.
The corporate is world-wide with operations throughout the whole planet, and has managed to scale by making a sustainable benefit within the area of transitioning conventional logistics programs to extra fashionable cloud-based options, in addition to buying opponents at affordable valuations. Descartes operates on a world scale, serving purchasers in industries as numerous as retail, transportation, manufacturing, and healthcare.
Descartes boasts a market capitalization of about $10 billion, and has had a incredible 2024. Boasting a 50% return to this point this 12 months, the present P/E of almost 80 is the one cause I don’t have Descartes ranked greater on this checklist. In its newest quarterly earnings report, the corporate introduced a year-over-year income enhance of 18%, with earnings surging by 25%. These sturdy financials replicate Descartes’ efficient development methods and operational effectivity.
Whereas the present valuation could seem steep, Descartes’ long-term stability and prudent monetary administration make it a compelling consideration for traders in search of publicity to the provision chain options market. One factor I actually like in regards to the firm is that it’s subscription-based – that means that purchasers are typically “very sticky” as soon as they’re dedicated.
3) Shopify (SHOP)
The elephant within the room relating to discussing Canadian tech shares is Shopify (SHOP).
I imply actually, there may be SHOP – after which there’s everybody else.
The software program large was briefly Canada’s largest firm by market cap because the tech darling of the pandemic (keep in mind when on-line buying was going to grow to be “the one buying”?) earlier than crashing again to Earth. Listed here are just some numbers to attempt to put this distinctive firm into context.
- Share value is up 60% YTD.
- SHOP is as soon as once more the second largest firm within the nation, proper in between TD and RBC.
- With a market cap of over $200 billion, SHOP is about as giant as each different Canadian tech inventory put collectively.
- Its complete return since going public in 2015 is over 4,400%!
- Practically 5 million on-line shops run Shopify.
- Income is up almost 25% 12 months over 12 months.
- Shopify is now firmly within the black most quarters – a rarity for a lot of software program firms.
What a loopy firm to attempt to place a worth on! I don’t assume anybody actually is aware of simply how a lot revenue this firm will produce when it totally matures.
Shopify rapidly established a distinct segment for themself because the “pleasant various to Amazon” when it got here to promoting stuff on-line. It has closely invested in each natural development and acquisitions, and has created a extremely stable long-term aggressive benefit with its artistic new concepts and economies of scale.
Morningstar analyst Dan Romanoff not too long ago said, “Shopify ought to construct on success in attracting bigger manufacturers to the platform, particularly given the rash of not too long ago launched options and merchandise, together with Markets Professional, Shopify Magic and Commerce Parts. GMV [Gross Merchandise Value] accelerated to 24% year-over-year development to USD$69.7 billion, whereas gross cost quantity processed by Shopify Funds was USD $42.9 billion, or 62% of GMV.”
I feel long-term Shopify will proceed to succeed as an organization, and that its enterprise mannequin locations it smackdab in the midst of the net retail development development. That stated, as with every thing in tech, the query is simply what’s the proper price ticket for this firm that also has a lot of its story left to jot down?
Shopify’s pivot from growth-at-all-costs mode, to extra of a streamlined firm that’s targeted on its core worth proposition has made numerous sense to me.
Clearly I’m not the one one whenever you take a look at the expansion the corporate has had. I’m additionally not fully certain that Shopify isn’t a takeover goal for the huge tech firms down within the States. Are you able to think about the premium the corporate might get – even because the second largest firm in Canada?
4) Open Textual content (OTEX)
Open Textual content Company is headquartered in Waterloo, Ontario, and calls themselves a frontrunner in enterprise data administration options. Serving companies of all sizes, OpenText presents a collection of companies designed to optimize provide chains and improve total operational effectivity. Based in 1991, the corporate has grown to make use of roughly 22,900 people as of June 2024.
OpenText has pursued an aggressive development technique by acquisitions, integrating over 80 firms prior to now decade. Regardless of this speedy enlargement, the corporate has maintained a debt-to-equity ratio of about 1.60, reflecting a balanced strategy to leveraging debt for development. (Particularly throughout the context of the risk-taking nature of most tech opponents.) The historical past of stable free money movement additional underscores monetary stability. Dividend traders have taken be aware, with consultants like Mike Heroux forecasting annual dividend development of 12% within the near- to mid-term.
Nonetheless, OpenText operates in a extremely aggressive business, going through formidable American counterparts. The depth of this competitors presents ongoing challenges, requiring steady innovation and strategic agility. Conversely, the corporate’s distinctive strengths make it a beautiful acquisition goal. With a price-to-earnings (P/E) ratio of about 17x.
OpenText is valued extra conservatively than many friends. Its dedication to shareholder worth is obvious in a dividend yield of roughly 3.50%, making it one of many few tech shares to additionally fall into Canadian dividend inventory lists.
5) Kinaxis (KXS)
Kinaxis Inc., headquartered in Ottawa, Ontario, has quietly emerged as one among Canada’s most distinguished provide chain administration software program suppliers. Based in 1984, the corporate has constructed a robust fame by serving to companies navigate the more and more advanced world of worldwide provide chains.
Final 12 months, Kinaxis reported complete income of $426.97 million USD, representing a year-over-year enhance of 16.38%.
You’re going to should pay up for that income development although. Kinaxis is buying and selling at a price-to-earnings (P/E) ratio round 185! Whereas it is a far cry from its earlier P/E ratio of over 500 in the course of the peak of the pandemic, it nonetheless locations Kinaxis within the realm of high-growth tech shares with premium valuations. Many different Canadian tech shares commerce at considerably decrease multiples, elevating questions on whether or not Kinaxis’s inventory is at the moment overvalued.
Kinaxis has been lively in pursuing development by acquisitions, a trademark of its technique over the previous few years. Since 2020, the corporate has accomplished 4 main acquisitions, together with its buy of MP Objects NV, a Dutch provide chain know-how agency. These acquisitions have helped Kinaxis develop its capabilities, broaden its product choices, and strengthen its presence in worldwide markets.
Kinaxis’s options are trusted by among the world’s largest and most well-known firms. Its shopper base consists of Ford, Unilever, and Merck, amongst others. These partnerships not solely spotlight the corporate’s credibility, but in addition present a gradual stream of recurring income, a vital ingredient for sustaining long-term development.
The corporate’s software program, together with its best-selling RapidResponse® platform, permits companies to anticipate disruptions, optimize provide chain efficiency, and make data-driven selections in actual time. This degree of performance is very vital in in the present day’s unpredictable financial local weather, the place agility and precision can imply the distinction between success and failure.
With mega opponents like SAP and Oracle all vying to most effectively incorporate AI into their product line, Kinaxis has its work minimize out for them – however to this point their administration crew has principally lived as much as the hype. That premium valuation does have me a bit fearful although if I’m being sincere.
6) Lightspeed POS (TSX: LSPD)
Up till 2020, Lightspeed was kicking butt. As an all-in-one resolution for small- and medium-sized companies (SMEs) who wished to gather cost on the Level of Sale (POS), Lightspeed’s natural development and development by acquisition attracted a ton of investor consideration.
Then the pandemic hit – and most folk figured that an organization specializing in person-to-person interactions could be in for powerful sledding… just for Lightspeed to show them useless incorrect. As a part of the tech-driven bull market throughout 2021, Lightspeed inventory went by the roof.
The corporate has quite a few subsidiaries together with Ecwid Inc., Vend, ShopKeep, iKentoo SA, and Kounta. It has a seamless work in with the SaaS platform, and sells the POS {hardware} SMEs want as effectively. It was based in 2005, and was founder-ran till 2022. Headquartered in Montreal, the corporate has places of work in New York, Ottawa, Amsterdam, and Ghent.
Following an excellent run as much as 2021, the bottom beneath Lightspeed began shaking. An organization named Spruce Level Capital determined to:
a) Wager that Lightspeed inventory would go down (aka: brief the inventory)
b) Launch a bunch of data that accused Lightspeed of presenting false data at quite a few factors in its growth.
Lightspeed instantly responded saying that data launched by Spruce Level had many inaccuracies, and identified the apparent battle of curiosity. Clearly this brought on many shareholders to develop nervous proper across the time when a basic tech sell-off was about to happen in 2022.
As a consequence of this sequence of occasions, Ligthspeed inventory has dropped greater than 80% from it’s all-time highs. Critics of the corporate cite the truth that Lightspeed wants to supply extra free money movement ASAP, and declare that they overpaid for acquisitions so as to develop their market share.
For now, this Canadian tech inventory is caught in a wait-and-see holding sample. It has maintained its $3.5 billion market cap, however I don’t have numerous religion that it’s going to interrupt out any time quickly.
The place to Purchase Canadian Tech Shares?
You should purchase all these tech shares (and the ETFs talked about beneath) by any Canadian brokerage. At present, we price Qtrade as the best choice – try our Qtrade Assessment to see what we consider their charges, customer support, account choices, and consumer expertise. Notably, you should buy and promote the iShares World Tech ETF (IXN) and the iShares US Know-how ETF (IYW) utterly free on the Qtrade platform.
Finest Canadian Tech Inventory ETFs
If you need instantaneous diversified publicity to the Canadian tech sector, the BlackRock iShares S&P/TSX Data Know-how Index ETF (XIT) might be your finest guess.
Now, given the comparatively small variety of tech firms in Canada, I’d be extra inclined to suggest the US or World markets if you happen to’re seeking to “obese” on the know-how sector. There are a number of completely different tech inventory ETFs within the US, however probably the most relevant one for Canadians could be the QQQ CAD Index ETF(QQC-F).
This ETF is the Canadian model of the QQQ Nasdaq-tracking index within the USA, and consists of lots of the largest firms on the earth in the present day akin to Alphabet (Google), Netflix, Meta (Fb), Amazon, Microsoft, Apple, and so forth.
Whereas there’s a layer of withholding tax added to dividend distributions on this time of “US ETF within a Canadian ETF” construction, these tech shares don’t provide a lot on the dividend facet of issues anyway, so it’s not prefer it’s an enormous sacrifice.
It’s additionally value testing our Finest ETFs in Canada article for extra diversified portfolio choices.
Last Phrase on Canadian Tech Shares
In the case of valuing and investing in Canadian tech shares, I’m simply not the best demographic. I like firms with long-term observe information, a number of free-cash movement, and sustainable sturdy aggressive benefit. Even higher if I can discover these sort of firms at a reduction – which is why I’m a fan of the Canine of the TSX technique.
With rising rates of interest affecting low cost tables, and low liquidity biting into the “development in any respect prices” enterprise fashions these tech firms pursue, I’m only a skeptic till confirmed in any other case.
Now that stated, if we’re trying on the tech sector extra broadly, I’m an enormous fan of the extra mature US firms within the area. It’s simply actually arduous to match the US tech shares given their large scale and aggressive moat, to our comparatively small world of Canadian tech shares.
