With the TSX Index rising nearly 17% in 2024, it is getting harder to find Canadian stocks that look like a bargain. However, one area that continues to look attractive is small-cap stocks. Generally, these are stocks that have market caps that range between $100 million and $1 billion.
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Canadian small-cap stocks offer outsized return potential
Canada is much smaller than the U.S., so it is fitting that it has a lot of stocks in this segment. The great thing is that small-cap stocks in Canada often do not get the same recognition as their American peers.
As a result, Canadian investors can pick them up early in their growth stage and benefit from two return engines: earnings growth and valuation multiple expansion. If you are interested in some small-cap Canadian stocks still in their early growth stage, here are three to consider buying right now.
A Canadian stock serving a big market
Firan Technology Group (TSX: FTG) might only have a market cap of $164 million, but it has been on a roll over the past year. Its stock is up 100% over the past year. The reason for this strong appreciation is good execution, strong growth, and a low starting multiple.
Firan provides specialized circuit boards and cockpit components for the aerospace industry. Out of the pandemic, the company has enjoyed steady organic growth as airplane manufacturers catch up on their substantial backlog demand.
Firan has also made some opportunistic acquisitions that expand its geographic and customer mix. The company targets 15% annual growth. So far, in 2024, it has grown revenues by 22% and adjusted earnings per share (EPS) by 36%.
With an enterprise value-to-earnings before interest, tax, depreciation, and amortization (EBITDA) ratio of 6.6 and a free cash flow yield of 11%, this Canadian stock is a bargain when compared to its growth aspirations.
A small-cap turnaround
Sangoma Technologies (TSX: STC) has a market cap of $268 million. Like Firan, it has had a great run this year. Its stock is up 88% year to date!
However, if you look back, Sangoma stock has been considerably higher in the past. This stock is a turnaround story. The company has built a considerable portfolio of communication software businesses. However, acquisitions were not well integrated. Likewise, the communication sector hit a hard downturn out of the pandemic.
Fortunately, a new management team is righting the ship. They have streamlined their sales partners, rightsized their cost structure, and focused on free cash flow returns. If it can return to a growth posture in 2025/2026, this stock could have considerable upside. Today, it trades with a 14% free cash flow yield!
A top Canadian growth stock
Propel Holdings (TSX: PRL) is one of the fastest-growing companies in Canada. It has a market cap of $1.1 billion, and almost no Canadians have heard of it.
Right now, Propel makes the majority of its income in the United States. It operates several online lending platforms to the non-prime consumer segment. The company charges elevated interest rates, but its consumers are also higher risk.
The company has a proprietary artificial intelligence platform that helps it mitigate underwriting risks. As a result, it can quickly scale and earn high returns on equity.
The company has been growing by over 30% per year. Yet, it only trades for 13 times forward earnings. It also has a decent 1.7% yield. This small-cap Canadian stock is a great addition on any pullback.
