The best time to invest is when you have cash to deploy. You might not always get the valuation or timing correct in an investment.
However, if you build a portfolio of quality stocks that consistently grow and build value for shareholders, you are likely to do very well. If you have $500 to put to work today, here are three Canadian tech stocks to look at right now.
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A small cap tech stock with big growth potential
Small cap stocks are a great place to invest for outsized, rapid returns. Likewise, if you wish to multiply your investment many times, it is best to start with smaller companies that have significant capacity to grow. VitalHub (TSX: VHI) only has a market cap of $369 million. However, it could become significantly larger in the years ahead.
It is amazing that this stock is over three times more valuable than it was last year when it traded with a market cap of only $100 million. VitalHub provides specialized software for healthcare providers around the world. Last year, it hit an inflection point on profitability and substantial free cash flow generation.
The healthtech has put that cash to work into several acquisitions that expand its service and geographic mix. It has a strong balance sheet to support future growth.
This is a solid story for both organic and acquisition growth. It is not the cheapest stock right now. But, for its elevated base of recurring revenues, it still trades at a discount to other software peers.
A steady Canadian compounder
Another small cap stock that looks like a good buy is Calian Group (TSX: CGY). While it is not growing as fast as VitalHub, it has put up solid high-teens revenue and earnings before interest, tax, depreciation, and amortization (EBITDA) growth.
Calian has a solid business. It is diversified across four diverse segments (healthcare, cybersecurity, training, and advanced tech). Around 50% of its revenue comes from a solid mix of government and public agency customers. Given its expertise at public procurement, Calian is a preferred vendor that continues to grow its backlog. This provides a stable base of revenues.
Each of its segments has been growing nicely. However, recent combined service packages are opening new growth opportunities. Also, newly added acquisitions have helped push up margins, and are moving Calian into new markets and opportunities.
The stock is an attractive value with its price-to-earnings ratio below its average growth rate. Calian has been buying back stock, so that is a good sign that management sees the value, too.
A software stock replicating a great strategy
Topicus.com (TSXV: TOI) is the last stock I’d look to buy with $500 right now. This is not a known company in Canada because all its operations are in Europe.
It was spun out of the renowned Constellation Software family a couple of years ago. If you can’t afford Constellation’s $3,850 stock price, Topicus.com is a great alternative.
Topicus.com is completing a very similar software roll-up strategy, but its focus is mainly in Europe. Since its spinout, it has delivered 28% compounded annual revenue growth and 21% EBITDA growth.
This company is growing organic revenues faster than Constellation. It has a strong software development strategy and several strong European software platforms. Topicus has produced so much excess cash that it has already paid a special dividend to shareholders.
With a strong balance sheet, this stock should continue to deliver solid double-digit results in the years ahead. After a recent 10% pullback, its valuation looks reasonably attractive.
