When looking at the Canadian stock market, there are two undervalued growth stocks that stand out for their potential. Those are Air Canada (TSX:AC) and Lightspeed Commerce (TSX:LSPD). These growth stocks, while operating in very different industries, demonstrate a strong ability to rebound from recent challenges and position themselves for substantial growth. Despite recent financial turbulence, they're both making strategic moves to expand and innovate, thus making them intriguing options for investors eyeing growth potential.

Air Canada

Air Canada, Canada's largest airline, has had a rollercoaster ride in the past few years. Like other airlines, it faced enormous hurdles during the pandemic, with travel restrictions severely impacting revenue. However, in its recent third-quarter (Q3) 2024 earnings, Air Canada reported a profit margin increase to 33%, boosted by lower operating expenses. This led to a significant earnings per share (EPS) rise to $5.68. Revenue was down slightly from the previous year. Yet the growth stock's strong push into Europe and Asia with new intermodal connections shows a clear path to growth.

This intermodal strategy, which allows travellers to book connecting rail and bus services seamlessly along with flights, is not only unique but also sustainable. Partnering with railway systems across multiple countries in Europe and Asia offers passengers expanded options and opens new revenue channels for Air Canada. The expansion to major travel hubs in Italy, Spain, Britain, and South Korea aligns with global trends in sustainable travel. It also points to Air Canada's innovative approach to capturing new markets.

From a financial perspective, Air Canada appears highly undervalued. Its current price-to-earnings (P/E) ratio of 3.48, coupled with strong growth in EPS, suggests that the market might be underestimating its recovery. The growth stock's robust operating cash flow of $4.24 billion and a levered free cash flow of $1.86 billion highlight its ability to fund expansion while maintaining solid financial health. These strong fundamentals position Air Canada as a viable growth stock, especially as the airline industry continues to recover.

Lightspeed stock

Lightspeed Commerce, a Canadian tech company specializing in POS (point-of-sale) solutions, has seen strong growth in a relatively short time. In Q2 2025, Lightspeed reported a 20% increase in total revenue to $277.2 million, along with a 24% rise in ARPU (average revenue per user). This growth is largely due to the increasing adoption of its payment solutions and subscription revenue. With transaction-based revenue alone rising by 33% year over year.

What makes Lightspeed an appealing growth stock is its focused expansion strategy. The growth stock has set its sights on high-potential markets like North American retail and European hospitality. Chief Executive Officer Dax Dasilva has emphasized product innovation as a key priority, with a lineup of new features designed to support complex, high-volume businesses. Lightspeed's strategic investments are clearly paying off as well. This was reflected in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $14 million — well above previous outlooks — and an improved fiscal 2025 EBITDA outlook to $50 million.

From a valuation standpoint, Lightspeed's price-to-book ratio of 1.02 makes it an attractive buy. The growth stock also maintains a healthy balance sheet, with $659 million in cash and low debt. This supports its continued investment in innovation and market expansion. While the growth stock is not yet profitable, its revenue growth and operational improvements suggest it's on a steady path toward achieving profitability.

Foolish takeaway

In terms of future outlook, both Air Canada and Lightspeed have positive trajectories. For Air Canada, the expansion into intermodal connections in Europe and Asia is a clear strategic advantage in the global travel market. This move is expected to fuel long-term revenue growth as more travellers seek integrated travel solutions. Lightspeed, however, is well-positioned to capitalize on the ongoing digitalization of retail and hospitality — particularly as more businesses seek robust, unified POS solutions to streamline operations.

Air Canada and Lightspeed represent two distinct but promising growth opportunities on the TSX. While the growth stocks face unique challenges, both companies have demonstrated resilience and an innovative approach to growth. For investors looking to add undervalued Canadian growth stocks to their portfolios, Air Canada and Lightspeed offer attractive entry points with potential for significant returns over the long term.