2 TSX Small-Cap Stocks With Huge Upside Potential

Put your money in these TSX small-cap stocks for long-term growth.

| More on:
Upwards momentum

Image source: Getty Images

Investing in small-cap stocks can fetch you huge returns over the long term. However, small-cap stocks are riskier. So, for the investors who have an appetite for risk, here are my top two small-cap TSX stocks that have strong growth potential.

Park Lawn

Park Lawn (TSX:PLC) stock has jumped more than 28% since I recommended it first on May 13. Despite the strong rebound in Park Lawn stock, it is still down about 16% this year and has further room for growth in coming quarters.

Park Lawn stock is the casualty of the broader market selloff. However, investors should note that the COVID-19 outbreak or economic situations can barely impact its business. The company offers funeral and cremation services with strong competitive advantages that continue to drive its financials.

Park Lawn’s top and bottom line have grown at a robust pace over the past several years, thanks to the sustained momentum in its underlying business. Its revenues and adjusted EBITDA have grown at a CAGR of over 60% in the last five years. Besides, its adjusted net earnings have increased at a CAGR of over 65% during the same period.

The ageing North American population, high barriers to entry, the company’s presence in markets with high cremation rate, and an increase in the number of cemeteries and funeral home assets act as long-term tailwinds for Park Lawn.

Park Lawn’s focus on streamlining costs, operational efficiencies, shift toward high-margin businesses, and strategic acquisitions should enhance its margins in the long run.

Park Lawn’s ability to stay ahead of the competition, defend and expand its market share through acquisitions and organic growth, and operational efficiencies provide a platform for strong upside in its stock over the long term. Also, Park Lawn stock offers a decent dividend yield of 1.9%.

Transcontinental

Transcontinental (TSX:TCL.A) is another small-cap stock with tremendous upside potential. The stock has underperformed the broader markets so far this year and is down about 15%. The COVID-19 pandemic took a toll on its printing business, which accounts for about 50% of its revenues.

Transcontinental provides packaging products and printing services. The company’s packaging products are used in the food and beverage industry and continue to witness steady demand. Transcontinental’s packaging products business is likely to see strong order uptake, as retailers expand their e-commerce business.

Meanwhile, challenges in its printing business are likely to abate soon, and management projects the segment to continue to post positive cash flows. With the reopening of the economy, the demand for its printing business is likely to return to normal.

Investors should note that Transcontinental stock is highly undervalued and trades at a significant discount when compared to the industry average. Transcontinental stock trades at next 12-month EV-to-EBITDA ratio of 5.4, which is considerably lower than the industry average of 10.9. Meanwhile, it trades at the next 12-month price-to-cash flow ratio of 3.4, as compared to the industry average of 15.5. 

Transcontinental’s strong growth prospects and low valuation make it an attractive long-term investment option. Also, Transcontinental stock offers a solid dividend yield of 6.7%.

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 Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends TRANSCONTINENTAL INC A.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »