Last week, the United States Federal Reserve slashed its benchmark interest rates by 50 basis points. It was the first rate cut in four years, which made investors optimistic. Amid improving investors’ sentiment, the S&P/TSX Composite Index is on an upward momentum and hit a new high yesterday. In this bullish environment, let’s look at three small-cap stocks that offer higher return potential.
Savaria
Savaria (TSX: SIS) designs, produces, and markets accessibility solutions worldwide with its widespread manufacturing facilities and dealer networks. In the first two quarters of this year, the company has grown its top line by 5.1%. Organic growth and favourable currency translation more than offset the divestment of its Norway operations to drive its topline. The company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 26.7%, while its adjusted EBITDA margin expanded by 300 basis points to 17.8%.
Meanwhile, the demand for accessibility solutions is rising amid an aging population and rising income levels. The accessibility solution producer focuses on innovative product development and strengthening its production capabilities. The company has also adopted a multi-year “Savaria One” initiative, which could boost its production and throughput while improving procurement and supply chain efficiencies. Amid its solid performance and healthy growth prospects, the company has returned 40% this year. Despite the recent increases, its valuation still looks attractive, with its NTM (next-12-month) price-to-sales multiple at 1.6. Also, earlier this month, the company raised its monthly dividend by 3.85% to $0.045/share, with its forward yield currently at 2.49%.
Docebo
Docebo (TSX: DCBO) offers a cloud-based, highly customizable learning platform. Amid digitization, growth in remote working and learning, and expansion of high-speed internet services, the adoption of LMS (learning management system) is rising. Meanwhile, Grand View Research projects the global LMS market to grow at an annualized rate of 19.7% for the rest of this decade. The company is investing in artificial intelligence (AI) to add innovative tools and features to its platform, which can enhance customer experiences.
Moreover, Docebo’s expanding customer base and rising average contract value could support its financial growth. Also, around 81% of its customers have signed multi-year agreements, stabilizing its financials. Despite its healthy growth prospects, the company is trading at around 20% discount compared to its 52-week high, thus offering excellent buying opportunities for long-term investors.
WELL Health Technologies
WELL Health Technologies (TSX: WELL) develops technologies and services to aid healthcare professionals in delivering positive patient outcomes. The demand for the company’s products and services has been rising amid the growing adoption of telehealthcare services, digitization of patient records, and increased usage of software solutions in the healthcare sector. Meanwhile, the company continues developing innovative products to enhance patients’ experiences.
The company continues to expand its footprint through organic growth, acquisitions, and strategic acquisitions. It recently acquired 10 clinics in British Columbia and Ontario from Shoppers Drug Mart. It has partnered with Microsoft to improve access to digital healthcare across North America. Along with these growth initiatives, the company has adopted several cost-cutting initiatives, which could deliver cost savings and drive its profitability. Meanwhile, WELL Health trades at an attractive NTM price-to-earnings multiple of 16, making it an ideal buy.
