Amid the U.S. FDA (Food and Drug Administration) fully approving Pfizer vaccine, the Canadian equity markets have continued their uptrend, with the S&P/TSX Composite Index touching a new all-time high on Wednesday. Meanwhile, the index currently trades over 18% higher for this year. So, amid improving investors’ sentiments, here are three top small-cap stocks that could deliver superior returns over the next two years.
With a year-to-date return of around 46%, Savaria (TSX:SIS) has outperformed the broader equity markets. The strong performance in the first six months of this year and accretive acquisition of Handicare drove the company’s stock price. In the recently reported second quarter, its top line and adjusted EBITDA grew by 111% and 89.3%, respectively. The acquisition of Handicare and organic growth due to recovery in economic activities have boosted the company’s financials.
Meanwhile, I expect the uptrend in Savaria’s stock price to continue. Handicare’s acquisition has expanded its geographical footprint, increased its product offerings, and provided cross-selling opportunities. Further, the acquisition could also improve its product innovation, production efficiency, and revenue streams.
Also, the demand for accessibility solutions is rising amid a growing aging population and increased income levels, benefiting Savaria. With its liquidity standing at $125 million, the company is well equipped to fund its growth initiatives. Additionally, Savaria also pays monthly dividends, with its forward dividend yield standing at 2.27%.
The pandemic-induced restrictions had forced Cineplex (TSX:CGX) to close its theatres, thus severely denting its financials and stock price. Currently, the company trades over 60% lower from its January 2020 levels. However, amid the easing of restrictions, the company has reopened all its screens as of July 17. It has adopted VenueSafe measures to improve the safety of its guests and employees. Cineplex has also introduced a movie subscription program called CineClub for $9.99 per month. These initiatives could increase its traffic in the coming quarters.
Along with these initiatives, the pent-up demand, expansion of vaccination programs, and postponement of movies from last year to this year could also contribute to Cineplex’s financial growth. Meanwhile, given its cost-cutting initiatives and its healthy financial position, the company is well equipped to ride out this crisis and deliver superior returns over the next two years.
Converge Technology Solutions
My final pick is Converge Technology Solutions (TSX:CTS), which has delivered an impressive return of around 120% this year. Its aggressive acquisitions and solid performance in the first two quarters of this year have raised its stock price. Its top line grew by 39.7% in the first two quarters, while its adjusted EBITDA increased close to 80%.
Meanwhile, the pandemic has hastened the digitization process, with even small- and medium-scale businesses looking to increase their digital presence. This shift toward digitization has increased the demand for the company’s services. The company also focuses on acquisitions to expand its product offerings, increase its geographical footprint, and strengthen its competitive position.
So far this year, Converge Technology has acquired CarpeDatum, Accudata Systems, Dasher Technologies, REDNET, and ExactlyIT. Further, it is working on acquiring Vicom Infinity and Infinity Systems Software. The company is also looking to raise around $150 million through new equity offerings. The company’s management has planned to utilize the net produced to make future acquisitions. So, the company’s growth prospects look healthy.
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 CINEPLEX INC. and Savaria Corp. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.