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:
diamonds, hidden gems

Image source: Getty Images

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

Piggy bank next to a financial report
Investing

TFSA: 2 Canadian Dividend Stocks for Your $6,500 Room Contribution

Alimentation Couche-Tard (TSX:ATD) and Scotiabank (TSX:BNS) are great value picks for new TFSA investors looking to put money to work.

Read more »

value for money
Investing

3 Remarkably Cheap TSX Stocks to Buy Right Now

Looking for some quality bargains on the TSX today? Check out these three stocks for value, growth, and income.

Read more »

money cash dividends
Investing

Passive Income: How to Make $600 Per Month Tax Free

Canadians on the hunt for passive income in a choppy market can look to generate $600/month with True North Commercial…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better Buy for TFSA Passive Income: Telus Stock or TD Bank?

Telus stock and TD stock look cheap today. Is one really oversold?

Read more »

funds, money, nest egg
Dividend Stocks

Income Stocks: A Once-in-a-Decade Chance to Get Rich

As a part of your diversified investment portfolio, solid dividend stocks on sale can help you get rich with growing…

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

2 Superb TSX Stocks to Buy for Passive Income

All dividend stocks can help you start a passive-income stream, but relatively few offer a healthy combination of yield and…

Read more »

A golden egg in a nest
Dividend Stocks

TFSA Investors: 2 Growth Stocks to Build an Adequate Nest Egg

Two TSX growth stocks are ideal holdings for TFSA investors building a nest egg or retirement wealth.

Read more »

financial freedom sign
Dividend Stocks

How to Easily Make $1 Million in 20 Years

There's trying to time the market, and then there's the easy way of investing if you want to make $1…

Read more »