Investors are always on the lookout for stocks that can increase their wealth at an exponential rate over the long run. They need to identify companies that are part of rapidly expanding addressable markets, allowing them to grow revenue and earnings at an enviable pace.
Small-cap stocks with strong fundamentals are likely to derive outsized returns for investors. Here, we look at three such stocks that Canadians can look to buy right now.
4Front Ventures
A pot stock flying under the radar, 4Front Ventures (CNSX: FFNT), is valued at a market cap of US$834 million. This company owns and operates licensed cannabis facilities in the U.S. At the end of 2020, 4Front had five dispensaries in Massachusetts, Illinois, and Michigan. It’s now rapidly gaining market share in Washington and is already the second-largest player in the U.S. edible market.
In 2020, 4Front Ventures more than tripled its sales to US$57.6 million, allowing the company to generate close to US$6 million in operating profits. In 2021, the company has forecast sales to touch $175 million while adjusted EBITDA is estimated at US$45 million.
4Front’s indoor growing facilities in Washington are compact can yield close to 400 grams of cannabis per square feet which is significantly higher than the sector average.
Columbia Care
This cannabis company has a presence in 11 states in the U.S. It has forecast sales of US$530 million in 2021, which will mean a year-over-year increase of 167%. Similar to most other cannabis companies, Columbia Care (CNSX: CCHW) has also grown via acquisitions over the years and has increased sales from US$77.5 million in 2019 to US$179.5 million in 2020.
Columbia Care recently announced its acquisition of Medicine Man for US$42 million. It will pay US$8.4 million in cash and the rest via company stock. According to Columbia Care, the acquisition represents a multiple of 4.5 times Medicine Man’s forward adjusted EBITDA estimates.
Columbia Care is among the cheapest pot stocks in the market and is trading at a forward price to 2022 sales multiple of 1.82; analysts expect its sales to touch US$509 million in 2021 and US$785 million next year.
The company is also forecast to improve its bottom line from a loss per share of $0.48 in 2020 to earnings of $0.27 per share in 2022.
Draganfly
A micro-cap stock valued at $186 million, Draganfly manufactures and sells commercial unmanned aerial vehicles. Its portfolio of products includes ground-based robots, handheld controllers, fixed-wing aircraft, and quad-copters.
The company also provides flight training services, wireless video systems, custom engineering, and training as well as simulation consulting programs. Draganfly’s client base includes enterprises part of the public safety, agriculture, mapping, and surveying markets.
This company has increased its sales from $1.38 million in 2019 to $4.364 million in 2020. In the last 12 months, its revenue stands at $5.4 million, valuing the stock at a trailing price to sales multiple of 34, which is extremely steep.
However, Draganfly is part of a disruptive market and is on track to increase its sales by at least 50% in 2021.
