4 Top Small-Cap Stocks to Buy in May

These four small-cap stocks have substantial growth potential and could deliver superior returns over the next few years.

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Businesses with their market cap falling between $300 million and $2 billion are classified as small-cap stocks. These companies offer high-growth prospects but are highly volatile, as market fluctuations can significantly impact these companies. So, investors with higher risk-taking ability should invest in these stocks to earn superior returns. If you are ready to invest, here are four Canadian small-cap stocks that can deliver superior returns in the long run.

Savaria

First on my list would be Savaria (TSX:SIS), which has a market cap of $1.17 billion. The accessibility solutions provider is up over 27% this year, comfortably outperforming the broader equity markets. Despite the pandemic, the company’s adjusted EBITDA rose 7.5% last year. Its strong performance and the acquisition of Handicare Group appear to have increased investors’ confidence, boosting its stock price.

Meanwhile, Handicare Group sells its products in over 40 countries and has manufacturing facilities in the United States, the Netherlands, the United Kingdom, and China. Along with expanding its geographical footprint, the acquisitions could improve its product innovation and production efficiency. Further, it also provides cross-selling opportunities, especially outside North America. Along with these initiatives, the expansion in the addressable market amid a rising aging population offers high-growth prospects for Savaria. So, I am bullish on the stock.

Absolute Software

Absolute Software (TSX:ABST)(NASDAQ:ABST), with a market cap of around $860 million, is my second pick. In February, the endpoint security and management solutions had reported an impressive second-quarter performance outperforming analysts’ expectations. The company’s management had also raised its fiscal 2021 guidance, which boosted its stock price.

The increased remote working and learning could drive cybersecurity spending higher, benefiting Absolute Software. The company’s average recurring revenue growth has accelerated over the last four quarters, which is encouraging. Further, the company’s adjusted EBITDA margin has improved gradually from 9% in fiscal 2017 to 26% in fiscal 2020. Amid the expanding addressable market, improving operating metrics, and its innovative product pipeline, I expect the uptrend in Absolute Software to continue.

WELL Health

WELL Health Technologies (TSX:WELL), which focuses on providing omnichannel healthcare services across North America, is my third pick. Boosted by increased demand for its services amid the pandemic and accretive acquisitions, the company posted an impressive performance last year. Its revenue increased by 53% to $50.2 million, while its adjusted EBITDA losses declined from $1.7 million in 2019 to $0.1 million.

Meanwhile, the company recently completed the acquisition of CRH Medical, Intrahealth Systems, and ExecHealth, which has increased its annualized revenue to over $300 million. Besides, the telehealthcare sector is one of the fastest-growing sectors globally, which is projected to grow at a CAGR of 28% over the next six years. With its recent acquisitions, WELL Health is well equipped to benefit from this growth. So, WELL Health could be an excellent buy right now.

HEXO

My final pick would be Hexo (TSX:HEXO)(NYSE:HEXO), which has acquired a significant market share in the cannabis-infused beverage segment. Through its joint venture with Molson Coors Canada, the company has launched several cannabis-infused beverages in the Canadian markets, which has received positive customer response. Recently, the company has expanded its beverage offerings by launching six new products last month.

Further, its acquisition of Zenabis Global could be a significant growth driver, as it could strengthen HEXO’s market share in the Canadian recreational industry and save $20 million through synergies. It is also working on joining hands with major CPG players to launch its edible products. Given its impressive growth initiatives and expanding addressable market due to increased legalization, I expect HEXO to deliver high returns over the next few years.

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 HEXO., HEXO., and Savaria. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

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