Tech stocks and cheap stocks are not typically synonymous. Frankly, if a tech stock becomes cheap, there could be something wrong with the business.
However, when you look in the small-cap universe, you can often find a combination of great technology, great growth, and fair or even great valuations. The market just seems to miss these businesses until they get larger than $1 billion.
Small-cap stocks tend to have more risk, but they also have more reward potential. If you don’t mind a bit of risk and want a nice bargain, here are two sweet little Canadian tech stocks to buy today.
A financial tech stock growing very quickly
With a market cap of $759 million, Propel Holdings (TSX:PRL) can still be considered a small-cap stock. It has been one of the fastest-growing stocks in Canada. Its stock is up 82% this year and 118% in the past three years.
Propel provides small to medium loans to non-prime consumers. What differentiates it from other non-prime lenders is its proprietary artificial intelligent platform for underwriting loans.
Propel evaluates thousands of different factors beyond just a person’s credit rating. It is able to process over 30,000 loan applications per day. It can provide an initial decision in less than 10 seconds. Given that it largely operates on an online platform, it can scale very quickly.
It operates its platform through banking and credit partners. It has a lending-as-a-service operation that it is starting to scale. It also has a new credit platform that it just commenced in Canada.
In the past year, this tech stock has grown its loan book by 39%. Yet, its net charge-off rate has declined by 100 basis points. Over the past three years, it has grown revenues and earnings per share by a compounded annual growth rate (CAGR) of 60% and 30%, respectively.
Despite its impressive growth, Propel trades for only 12 times the 2024 expected earnings. It also happens to pay a 2.3% dividend yield. For a stock that could grow by a high 20% rate in 2024 (and even beyond), this tech stock seems like a great bargain today.
A Canadian software turnaround stock
Sylogist (TSX:SYZ) is another small-cap tech stock worth looking at. It has a market cap of $222 million, so it is very small.
This is a bit of a different story from Propel because recent results have not been great. Sylogist is a turnaround investment. Previously, the company had a poor management incentive structure that resulted in a massive underinvestment in the business.
New management has taken the reins and they have been quick to invest in their product mix, sales force, and customer experience. The company is now postured for long-term growth.
Sylogist provides enterprise planning software for municipalities, charities/non-profits, and school districts. With a revitalized strategy, the company has started to focus on expansion.
It has made several recent customer wins. Likewise, with some of the best software in its space, it is starting to take share from incumbents. Given how essential its software is, once it wins a customer, it tends to be very sticky.
This tech stock trades with an enterprise value-to-earnings before interest, tax, depreciation, and amortization ratio of 12. It could easily grow by that rate or more for several years to come. Yet, it trades at an extreme discount to other industry peers.
It has a huge opportunity to take market share. This tech stock is still in the early stages of a very long, steady growth trajectory in the coming years.
