Small-cap stocks can deliver high returns in the long run but can be highly volatile, as these companies are highly susceptible to market volatilities. So, investors with an appetite for risk and a longer investment horizon should invest in these stocks to earn superior returns. Meanwhile, here are four small-cap stocks with high growth potential and are available below $10.
My first pick would be Ontario-based cannabis company Hexo (TSX:HEXO)(NYSE:HEXO). Through its joint venture (JV) with Molson Coors Canada, the company has gained a significant foothold in the cannabis-infused beverage segment, which offers high growth potential. Meanwhile, the JV has also expanded its offering by introducing six new products earlier this month. Further, HEXO has launched value products at competitive price points and focuses on improving its distribution across Canada to drive its sales.
Meanwhile, the company is also looking at partnering with major CPG players to launch edible products, boosting its presence in the United States. Further, the acquisition of Zenabis Global could position HEXO as one of the leading players in the Canadian recreational market while delivering $20 million savings through synergies. So, given its growth initiatives and expanding addressable market, I expect HEXO to provide superior returns in the long run.
WELL Health Technologies
Amid the rising demand for telehealthcare services, I have selected WELL Health Technologies (TSX:WELL) as my second pick. Fortune Business Insights expects the global telehealth market to grow at an annualized rate of 25.2% over the next seven years. Through its acquisitions, the company is well equipped to benefit from the expanding addressable market.
The recent acquisition of CRH Medical expands the company’s footprint in the highly lucrative U.S. market. In its recently announced quarter, CRH reported an adjusted operating EBITDA of $16.1 million. So, the acquisition could be accretive, boosting its financials in the coming quarters. Further, WELL Health has also strengthened its balance sheet by raising around $300 million in February. So, the company is well positioned to fund its growth initiatives and future acquisitions.
My third pick would be Sangoma Technologies (TSXV:STC), which provides cloud-based communication solutions to businesses of all sizes. With many businesses warming up to remote working, the demand for the company’s services is rising. In its December-ending quarter, the company’s top line and adjusted EBITDA grew by 9% and 32% year over year, respectively.
Meanwhile, the company is also looking at consolidating its position through acquisitions. Last month, it completed the acquisition of Star2Star for around $458.7 million in the cash and stock deal. With Star2Star reporting an adjusted EBITDA of $19 million in the trailing 12 months, the acquisition could be accretive for Sangoma Technologies. Amid the recent selloff in the tech stocks, the company is trading over 20% lower from its February highs. So, I believe the correction provides an excellent entry point for long-term investors, given its healthy growth prospects.
My final pick would be Goodfood Market (TSX:FOOD), an online grocery company that delivers fresh meal solutions and grocery items. Given the convenience, more people are now adopting online shopping, driving its customer base. Further, its expanded product offerings and introduction of initiatives, such as same-day deliveries, are gaining traction with its customers, driving basket sizes and order frequencies.
Further, its investment in automation and technology is beginning to yield results, as the company has reported positive adjusted EBITDA for four consecutive quarters. Given the favourable trend towards online shopping, improving operating metrics, and an enormous expansion scope, I believe Goodfood Market to deliver superior returns over the next three years.
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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.
The Motley Fool recommends Goodfood Market, HEXO., and HEXO. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.