Small stocks can and do offer explosive growth. Many micro- and nano-cap stocks experience short-term growth spurts and spikes that can make their investors more money in weeks and months than other, more traditional growth stocks may offer in years. This is not a rule — rather, it’s a trend — as many large-cap companies can also offer spikes, and many micro-cap companies may experience a steady growth pattern.
Similarly, small-cap stocks can offer both. They can offer growth spikes as well as steady long-term growth. And if you are seeking the latter, there are two small-cap stocks you may consider investing in.
A communication device company
Sangoma Technologies (TSX:STC) has been in the business of corporate communication solutions and technologies for a while. This Markham-based company was founded in 1984 and has evolved from offering on-site exchange solutions to modern, Communication-as-a-Service solutions and cloud services. The company has grown its product portfolio to vast proportions for its size.
Its market capitalization of $300 million places it at the borderline of the small-cap scale, and even that is a recent development. Until 2017, the company was trading at a fraction of its current cost (less than one-third). Like most other stocks, the company experienced a powerful growth spike post-pandemic, which sent its stock soaring 280% in less than a year. And now, it’s going through the fall-out and trading at a 54% discount to its 2021 peak.
But if you consider its growth history before the pandemic, it’s comparable to most modest growth stocks trading at the upper quartile of small-cap and even many large-cap growth stocks. And its 10-year CAGR is still almost 16%, and that’s after losing half of its value.
A capital markets company
An even more consistent and steady growth small-cap stock you may consider investing in is Clairvest Group (TSX:CVG). It’s based in Toronto and was founded in 1987, so it’s a mature enough business. The current market capitalization of the company is $1 billion, which is quite close to the assets under management of $2.8 billion.
The business model of Clairvest is slightly different from typical capital market companies, as it focuses on entrepreneurs. So far, it has made about 57 investment partnerships and grown its capital by 3.8 times from the 38 strategic exits it made, which makes its prospects look pretty promising.
Clarivest has returned over 400% to its investors in the last 10 years and has a 10-year CAGR of 17.6%. And both the stock’s history and its current valuation make this growth rate seem entirely sustainable over the long term.
Growth stocks, whether they offer sporadic growth spikes or consistent long-term growth, are helpful in your portfolio. The first kind of growth stock allows you to grow your capital in a relatively short amount of time, while the other type is more a buy-and-forget one and perfect for investors that take a relatively passive approach to investment management.