3 Canadian Small-Cap Gems You’ll Want to Buy (Before Everyone Else Does)

Given their high-growth potential, these three small-cap stocks could deliver superior returns in the long run.

| More on:

Usually, small-cap companies will be young and offer higher growth prospects. So, these companies tend to deliver superior returns in the long run. However, they are highly susceptible to market volatility, thus making them risker than mid- and large-cap companies. So, if you have an appetite for high-risk and high-return stocks, here are my three top picks.

Dye & Durham

Dye & Durham (TSX:DND) offers practice management solutions to legal, financial, and business professionals that could improve their efficiency and profitability. The company has witnessed solid buying over the last few months, with its stock price rising by over 90% from its 52-week lows. The termination of the long-due acquisition of Link Group, the acquisition of Insight Legal Software, and the improvement in investors’ sentiments amid signs of cooling inflation appear to have driven the company’s stock price.

Although the acquisition of Link Group could have added A$257 million of adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), the delay had stalled Dye & Durham’s other growth initiatives. So, the deal’s termination has freed up resources, thus allowing it to support additional growth initiatives. The acquisition of Insight Legal Software has expanded its product offering while strengthening its footprint in the United Kingdom. Despite its accelerated acquisitions, Dye & Durham has maintained its adjusted EBITDA margin above 50%, which is encouraging.

Considering its growth prospects and an attractive NTM (next 12-month) price-to-sales multiple of 2.6, I believe Dye & Durham would be an excellent buy for long-term investors.

Jamieson Wellness

Jamieson Wellness (TSX:JWEL) is a Canadian health and wellness company that has grown its organic revenue at a healthier CAGR (compound annual growth rate) of 10.6% since going public in 2017. I expect the uptrend to continue amid a growing aging population and the company’s expansion in high-growth markets, such as the United States and China.

In July, the company acquired Nutrawise Health & Beauty Corporation, which produces and marketers premium supplements under the youtheory brand, for around $265 million. The acquisition has expanded its presence in the United States. The company has signed an agreement to acquire both tangible and non-tangible assets of its distribution partner in China, thus allowing the company more control over its products’ marketing and distribution.

Further, Jamieson Wellness trades 20.3 times analysts’ projected earnings for the next four quarters, making it an attractive buy.

goeasy

goeasy (TSX:GSY) is another excellent small-cap stock to have in your portfolio. The company has been growing its revenue and diluted EPS (earnings per share) at a CAGR of 20% and 28%, respectively. Despite its solid growth, the company has acquired around 3% of its addressable market. So, it has substantial scope for expansion. Given its expanded product offering, omnichannel distribution, and increased penetration, the company is well positioned to grow its market share in the coming years.

Meanwhile, goeasy’s management expects its loan portfolio to grow by 54% over the next three years to reach $4 billion by the end of 2024. The company has planned to open 10-15 easyfinancial locations in 2023 and five easyfinancial locations in 2024, which could support its growth. The expansion of the loan portfolio could grow its revenue and operating profits. Meanwhile, the management expects a return on equity of over 22% annually for the next three years. The company also pays quarterly dividends, with its yield for the next 12 months at 2.87%.

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.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

four people hold happy emoji masks
Dividend Stocks

1 Stellar Canadian Stock Down 22% From 52-Week Highs to Buy and Hold Forever

Capital Power (TSX: CPX) might be the buying opportunity that pays off for decades.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

This 7.9% Dividend Stock Pays Monthly, Even During Recessions

SmartCentres REIT (TSX:SRU.UN) pays a monthly distribution through thick and thin.

Read more »

oil pump jack under night sky
Energy Stocks

1 Magnificent Canadian Energy Stock Down 21% to Buy and Hold for Decades

Canadian Natural Resources (TSX:CNQ) stock is down, but investors shouldn't give up on the name just yet.

Read more »

dividends grow over time
Stocks for Beginners

These Stocks Are My Ultimate Confidence Plays in Uncertain Times

Are you wondering what types of stocks you can hold through uncertain times? Here are some ideas on how to…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, July 11

After a record close, the TSX faces early pressure today as U.S.-Canada trade tensions flare and domestic jobs data looms.

Read more »

stocks climbing green bull market
Investing

If This TSX Rally Continues, These Are the 2 Stocks You’ll Kick Yourself for Not Buying

Here are two top TSX stocks long-term investors shouldn't sleep on during this most recent rally.

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

I’d Buy This 3.3% Dividend Stock in Bulk Before the Next CRA Audit Wave

It might not have the highest dividend yield, but it certainly has one thing on its side: consistency.

Read more »

ETF stands for Exchange Traded Fund
Investing

What’s a Good International ETF for Canadians to Buy Now?

The Vanguard S&P 500 Index ETF (TSX:VFV) stands out as a great ETF for Canadians to consider buying into if…

Read more »