Investing in long-term growth stocks is both an art and a science, requiring a balance of fundamental analysis and a forward-thinking mindset. It's not just about choosing companies that have performed well historically. It's also about identifying those positioned for sustainable growth. That's why today, we're looking at Hammond Power Solutions (TSX:HPS.A), goeasy (TSX:GSY), and Royal Bank of Canada (TSX:RY) as top-notch options.

Look at earnings

Earnings growth is one of the first indicators of a Canadian stock's potential for long-term success. A steady increase in earnings signals a business's ability to adapt, expand, and thrive. Hammond Power Solutions has demonstrated robust growth, with its recent earnings showing a year-over-year increase of 13%. This places it ahead of many of its peers in the electrical industry.

Similarly, goeasy maintained impressive momentum with a trailing price-to-earnings (P/E) ratio of 10.47 and a forward P/E of 8.47, suggesting that analysts expect this upward trend to continue. Royal Bank of Canada, with its massive scale, reported a 16.2% year-over-year quarterly earnings growth. Underpinned by a diversified portfolio of financial services.

Revenue trends further solidify a company's growth story. Hammond Power Solutions posted a 6.9% increase in quarterly revenue compared to the same period last year, reflecting growing demand in its market niche. goeasy, however, achieved a 5.1% growth in revenue, underscoring its ability to attract new customers while retaining existing ones. Royal Bank of Canada impressed with a 13% growth in quarterly revenue, showcasing its ability to capitalize on favourable market conditions and strong client relationships. These trends in revenue growth are critical because they lay the foundation for profitability and reinvestment in the business.

Books should be balanced

Management effectiveness is another critical factor to examine. The leadership team at Hammond Power Solutions has delivered an impressive return on equity (ROE) of 27.7%, indicating their ability to efficiently deploy capital for growth. goeasy's management achieved an ROE of 25.75%, reflecting their success in navigating a competitive industry. Royal Bank of Canada, with its experienced management team, posted a strong return on assets of 0.8% and a return on equity of 13.68%. Both testaments to its operational efficiency and strategic vision.

Debt levels can either propel a company forward or weigh it down, making it essential to scrutinize a company's leverage. Hammond Power Solutions maintains a prudent debt-to-equity ratio of 13.2%, signalling effective financial management. In contrast, goeasy operates with a higher debt-to-equity ratio of 292.63%. This, while typical for financial services firms, requires careful monitoring. Royal Bank of Canada, with its extensive asset base, can comfortably support its $444.69 billion in total debt, reflecting its financial strength and stability.

Get the most for your money

Dividends can be an attractive feature for growth investors seeking some income along the way. Hammond Power pays a modest forward annual dividend of $1.10 per share, yielding 0.80%, signalling a commitment to sharing profits while reinvesting for growth. goeasy's dividend yield stands at 2.73%, supported by a low payout ratio of 27.26%. This suggests ample room for future increases. Royal Bank of Canada, with its 3.23% dividend yield and a payout ratio of 48.98%, continues to offer investors a reliable income stream alongside capital-appreciation potential.

Valuation is always a key consideration when selecting growth stocks. Hammond Power Solutions has a forward P/E ratio of 19.08, reflecting expectations of continued growth. goeasy trades at a forward P/E of 8.47, appearing undervalued relative to its growth prospects. Royal Bank of Canada's forward P/E of 13.66 positions it as an attractive option for investors seeking both stability and growth. Understanding these metrics can help you avoid overpaying for a Canadian stock while still capturing its upside potential.

Bottom line

In recent developments, all three Canadian stocks have made headlines for their performance and outlook. Hammond Power Solutions reported strong third-quarter results in 2024, highlighting its operational resilience. goeasy continues to expand its product offerings, enhancing its appeal to a broader customer base. Royal Bank of Canada, meanwhile, remains a cornerstone of the Canadian financial system, consistently delivering value to shareholders. By carefully considering these factors, investors can make informed decisions and build a portfolio of long-term growth stocks that align with their investment goals.