Investing in small-cap companies can help you outpace the broader markets by a wide margin if you can successfully identify winning bets. Typically, companies valued between the market caps of $300 million and $2 billion are classified as small-cap stocks.
Some of the best-performing companies in the last three decades started off as small caps. For instance, Amazon was valued at US$1 billion back in the early 2000s. While not every small-cap investment will be successful, this strategy offers an enticing risk/reward profile due to the potential to derive multi-fold returns in a bull market.
So, let’s see which two TSX small-cap stocks you should buy in March 2023.
Neighbourly Pharmacy stock
Among Canada’s largest and fastest-growing network of community pharmacies, Neighbourly Pharmacy (TSX:NBLY) is valued at a market cap of $1 billion. As a majority of these pharmacies are located in underserved markets, the company benefits from lower competition while generating a bulk of its revenue from prescription sales.
Neighbourly Pharmacy owns more than 6,500 outlets in Canada and is well poised to further gain traction on the back of its acquisition-based business model. In the last two fiscal years, it acquired 70 pharmacies, allowing the company to increase sales from $150 million in fiscal 2019 (ended in March) to $671 million in the last 12 months.
Inorganic growth continues to drive sales for Neighbourly Pharmacy, as its top line surged by 90.6% year over year to $265 million in the fiscal third quarter (Q3) of 2023. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) almost doubled year over year to $28.5 million in Q3, indicating a margin of 10.8%.
The company is forecast to end fiscal 2024 with sales of $953.8 million and adjusted earnings of $0.76 per share. So, NBLY stock is priced at one times forward sales and 30 times forward earnings, which is very reasonable.
Bay Street analysts remain bullish on this small-cap TSX stock and expect shares of the company to surge by 30% in the next 12 months.
Well Health stock
Another TSX stock part of the healthcare space is Well Health (TSX:WELL), a company valued at a market cap of $1 billion. One of the fastest-growing companies in Canada, Well Health has built its business by focusing on highly accretive acquisitions.
Well Health has increased revenue from $32.8 million in 2019 to $528 million in the last four quarters. Due to its exponential growth in sales, WELL stock has returned almost 4,000% to investors since its initial public offering in April 2016. Down 51% from all-time highs, WELL stock is trading at less than two times forward sales.
A practitioner-focused digital health company, Well aims to positively impact the outcomes of patients and empower healthcare practitioners by providing a robust portfolio of end-practice management tools and services, including electronic medical records, data protection, and revenue cycle management.
In Q4 of 2022, Well Health increased omni-channel patient visits by 42% year over year, while patient interactions stood at 4.9 million in 2022, up 86% year over year.
Due to its stellar growth metrics, Well Health stock is trading at a discount of 75% compared to Bay Street estimates.
