Today’s small cap is tomorrow’s blue chip.
Any company that’s part of the S&P 500 today was a small cap at one point. And investors who bought their shares early have been handsomely rewarded ever since.
What was true historically is still true today. At any given moment, a number of small-cap stocks exist that are destined to become big players. It may not happen overnight, but it could happen surprisingly quickly. Shopify appears to be on its way to the top, and it only went public three years ago. If you’re looking for stocks that have the potential to do the same, here are three current small caps that could have a ways to go.
Lightspeed POS (TSX:LSPD) is a tech startup with a market cap of 2.86 billion. That’s not exactly micro-cap territory, but it’s pretty small all things considered. Lightspeed develops point-of-sale technology with built-in supply chain management and analytics. In 2018, the company did over $13 billion in total transaction volume — an impressive figure for such a young company.
Lightspeed grew its revenue at 36% year over year in its most recent quarter. This is strong growth that could take the company into large-cap territory if it can keep it up. Speaking of which, Lightspeed’s business niche is similar to that of Shopify — another former small cap that’s now in the TSX 60.
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Cargojet (TSX:CJT) is a small cargo airline with a market cap of $1.2 billion. It ships cargo throughout Canada and, to a lesser extent, internationally, from its base at the John C. Munro Hamilton International Airport, a smaller airport in the GTA. In its most recent quarter, Cargojet grew its revenue by 9% and adjusted EBITDA by 30%. If the company can keep up such heady growth, it may become a large-cap stock eventually. Another possible outcome for this stock is being bought out at a premium valuation, which is reasonably likely given the trend of consolidation in the airline business.
Sienna Senior Living
Sienna Senior Living (TSX:SIA) is a company that provides long-term care and accommodations to seniors. Senior living is a rapidly growing industry, with Canada’s aging population playing right into it. Whatever you think about the long-term implications of an upside-down population pyramid, it’s clear that this one industry stands to benefit from it.
In its most recent quarter, Sienna Senior Living increased its revenue by 15.8% year over year, while diversifying its portfolio to include both retirement and acquired residences. The company pays an annualized dividend of $0.92, which works out to a 4.62% yield at current prices. The company has a current market cap of just $1.3 billion, which could grow considerably as the population ages. We’ll have to see whether Sienna becomes a true large cap, but I have no doubt it will be worth more in 10 years than it’s worth now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Button has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of CARGOJET INC., Lightspeed POS Inc, Shopify, and Shopify. Shopify is a recommendation of Stock Advisor Canada. Cargojet is a recommendation of Hidden Gems Canada.