Small-cap companies have a market capitalization between $300 million and $2 billion. Given their smaller size, these companies have massive scope to expand their operations and grow their financials above the industry average. However, small-cap stocks are highly susceptible to macro factors, thus making them riskier propositions.
Against this backdrop, I believe investors with higher risk-tolerance abilities and longer investment horizons should look to buy these stocks to earn superior returns. Meanwhile, here are three small-cap stocks that I am bullish on due to their high-growth prospects.
WELL Health Technologies
WELL Health Technologies (TSX: WELL) is a digital healthcare company that leverages technology to help healthcare practitioners deliver positive patient outcomes. Supported by its solid first-quarter performance, the raising of its 2024 guidance and the announcement of a new share-repurchase plan have improved investors’ confidence, driving the company’s stock price. Year to date, the company is trading 20.5% higher. Despite the surge, WELL Health’s valuation looks attractive, with its NTM (next-12-month) price-to-earnings multiple of 18.5.
Meanwhile, the growing popularity of virtual healthcare services, digitization of patient records, and adoption of software services in the healthcare industry have created a multi-year growth potential for WELL Health. The digital healthcare company is developing new artificial intelligence-powered products, making strategic partnerships, and continuing its acquisitions, which could boost its top line in the coming years. Further, it has also implemented a cost-optimization program, which could improve its operating efficiency and drive profitability. Considering all these factors, I believe WELL Health will deliver multi-fold returns over the next 10 years.
Savaria
Second on my list is Savaria (TSX: SIS), which designs, manufactures, and markets accessibility and mobility products and solutions. It reported an impressive second-quarter performance earlier this month, with its top line and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increasing by 11.6% and 43.3%. Its adjusted EBITDA margin expanded by 420 basis points to 19%. At the end of the quarter, the company’s available funds stood at $226.6 million. So, its financial position looks healthy to fund its growth initiatives.
The demand for accessibility and mobility solutions could continue to rise amid the aging population and increasing income levels. Meanwhile, Savaria is investing in research and development to enhance the features of its existing products and develop new ones. Its “Savaria One” initiative focuses on price optimization and market share expansion. Also, the initiative would help increase its production capacity and efficiency while streamlining its procurement and supply chain. Amid these growth initiatives, Savaia’s management projects its top line to reach $1 billion next year while expanding its adjusted EBITDA margin to over 20%.
Moreover, Savaria pays a monthly dividend of $0.0433/share and trades at an attractive forward price-to-earnings multiple of 18.8, making it an excellent buy at these levels.
Docebo
My final pick is Docebo (TSX: DCBO), which offers learning management solutions to businesses worldwide. The company posted an excellent second-quarter performance last week, with its top line growing by 22%. Expanding customer base and growth in average contract value boosted its sales. Supported by the efficient use of artificial intelligence in its platform, the company has added 307 customers over the last four quarters while growing its average contract value from $48,148 to $52,822.
Moreover, the company’s adjusted EBITDA and adjusted EPS (earnings per share) grew by 158% and 85.7%, respectively. Its adjusted EBITDA margin expanded from 7% to 15%. It also generated free cash flows of $8.4 million during the quarter. Meanwhile, the uptrend in its financials could continue amid the growing popularity of digital learning solutions in academics and businesses. The company’s innovative product launches and strategic partnerships could continue to drive its financials.
Amid its solid second-quarter performance, Docebo’s stock price has increased by 14.6% since reporting its earnings on August 8. Despite the recent increases, the company trades around 25% lower than its 52-week high. Considering its higher growth prospects and discounted stock price, I believe Docebo will be an excellent buy at these levels.
