The Tech Stock Boom Has Arrived in Canada?s Market (Finally)
Tech-stock boom has well and truly arrived in Canada’s market
Divya Balji
Bloomberg
It makes up almost 6% of Canada’s stock market and is the best-performing sector this year.
That’s right: technology stocks have climbed a massive 59% in 2019 — more than double the next-best industry group on the S&P/TSX Composite Index. In fact, tech’s share of the benchmark index has grown at the fastest rate among all sectors in the past four years, according to data compiled by Bloomberg.
“The tech ecosystem in Canada is very robust,” said Todd Coupland, managing director of institutional equity research at CIBC Capital Markets. “There are some high-quality growth companies that have begun to scale up over the last few years and they’ve gone public, and the success of those companies is manifesting itself in higher share prices.”
Canada’s tech sector hasn’t always had a smooth road. Fortunes have ebbed and flowed with the likes of BlackBerry Ltd., formerly known as Research In Motion, and now-defunct telephone equipment maker Nortel Networks Corp.
But the S&P/TSX Composite Information Technology Index, with a mere 10 members, is now on track for its seventh year of gains — its longest winning run on record — having added C$108 billion ($81 billion) in market value in 2019. In comparison, the S&P 500 Info Tech Index, with 68 stocks, has climbed 29% this year after a 1.6% decline in 2018.
Ottawa-based Shopify Inc., which has climbed more than 1,500% since it went public in 2015, is a big part of the success. It has a 39% weighting on the tech sub-gauge and comprises 2.18% of the broader benchmark.
“With Shopify getting bigger and bigger, it’s getting more on the radar of larger, more global focused investors,” said Suthan Sukumar, an analyst at Eight Capital. “That is drawing more eyeballs to the Canadian market.”
It isn’t just Shopify that’s making waves. Lightspeed POS Inc. — which boasted Canada’s second-biggest IPO this year and the biggest offering by a Canadian tech firm in almost nine years — had a stunning trading debut in March. The stock has climbed 175% as the company forecast annual revenue that beat analyst expectations. That performance isn’t reflected in the S&P/TSX Info Tech index, which hasn’t yet added Lightspeed.
And another tech company is looking to follow in Lightspeed’s footsteps. Toronto-based Docebo announced Wednesday that it filed documents with regulators for an IPO.
With valuations sky-high, it’s worth asking whether the rally can last. The price-to-earnings ratio for the S&P/TSX Composite Info Tech gauge stands at 34.6, compared with the broader benchmark’s multiple of 14.3.
Sukumar says he sees opportunity in at least some corners of tech.
“There is an opportunity for investors to continue rewarding higher-quality growth and growth that can prove to be resilient in these kind of market conditions,” he said.
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