Small-cap companies have a market capitalization between $300 million and $2 billion. They are usually young companies and offer higher growth prospects than mid- and large-cap companies, thus possessing higher return potential. However, small-cap companies are highly susceptible to market volatility, making them riskier. So, investors with higher risk tolerance abilities can buy the following three stocks to earn superior returns in the long run.
WELL Health Technologies
WELL Health Technologies (TSX:WELL), a digital healthcare company, is my first pick. The company posted an impressive third-quarter performance last week, with its revenue and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to WELL shareholders growing by 23% and 10%, respectively. Strong organic growth and acquisitions over the last four quarters overcame the negative impact of divestments to drive its financials.
Moreover, WELL Health continues to invest in artificial intelligence to develop and launch innovative products that can support healthcare providers and improve patient outcomes. It has a healthy acquisition pipeline with 17 signed letters of intent (LOI) and definitive agreements. It has also implemented a cost optimization program, including right-sizing its employee count and several other cost-saving initiatives, which could improve its profitability. Also, the company’s management has stated that it would complete its future acquisitions through cash generated from its operations and would not dilute its shares. Considering all these factors, I am bullish on WELL Health.
Docebo
Docebo (TSX:DCBO), which offers an end-to-end learning platform to organizations, is my second pick. It reported an excellent third-quarter performance, beating its guidance. Its revenue grew 19% to $55.4 million, with revenue from subscriptions forming 95%. The net addition of 266 customers over the last four quarters and a 9.8% increase in average contract value boosted its sales. Its adjusted net income grew 66% to $8.3 million while generating a free cash flow of $4.5 million. Its free cash flows declined 46.4% due to the payment of semi-annual bonuses and the timing of payments to vendors.
Moreover, the LMS (learning management system) market is growing in double digits and could continue to grow for the rest of this decade. Given its highly customizable platform and AI (artificial intelligence) powered tools, Docebo can benefit from the addressable market expansion. Despite the healthy buying over the last few months, the company trades at a substantial discount compared to its 2021 highs, making it an excellent buy.
Savaria
Savaria (TSX:SIS) has witnessed healthy buying this year, with its stock price rising 47%. In the first three quarters, the company’s top line has grown by 3.9% to $644.4 million amid organic growth and favourable currency translation. However, the divestment of its Norway operations offset some of the growth. During the same period, its adjusted EBITDA has grown by 24.6%, while its adjusted EBITDA margin has expanded from 15.3% to 18.4%.
It also generated $85.9M of cash from its operations, which the company utilized for capital expenses, acquisition, and to pay interest, dividends, and debt. It also strengthened its financial position by lowering its net debt-to-adjusted EBITDA multiple from 2.07 at the beginning of this year to 1.69 as of September 30.
Meanwhile, I expect Savaria’s financial uptrend to continue amid the growing demand for accessibility and patient care products due to the aging population and rising income levels. The company’s “Savaria One” initiative could help increase capacity and throughput, improve supply chain efficiency, and invest in innovative product development, strengthening its market share and boosting its sales. Also, the company pays a monthly dividend, with its forward yield currently at 2.4%. Considering all these factors, I believe Savaria would be an excellent buy.
