While investing in fundamentally strong blue-chip stocks is a proven strategy to build long-term wealth, those with a higher risk appetite can consider buying and holding quality penny stocks and benefit from outsized gains over time.
Savvy investors may focus on smaller players, including penny stocks with significant upside potential in 2025 and beyond. In this article, I have identified two profitable Canadian penny stocks trading under $10 you can buy for the new year. Let’s see why.
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Penny stock #1
Valued at a market cap of $210 million, Sylogist (TSX: SYZ) is a software company specializing in enterprise resource planning (ERP) solutions. It offers a suite of products through its Serenic Navigator platform, including financial management, payroll, analytics, and reporting tools.
Sylogist demonstrated strong performance in the third quarter (Q3) of 2024 as it achieved a bookings growth of 14% year over year. Its education vertical contributed almost 40% of total bookings, allowing the company to gain traction in this recession-resistant sector.
Sylogist emphasized that its financial performance in Q3 showed steady progress, with SaaS (software-as-a-service) annual recurring revenue (ARR) increasing by 13% year over year to nearly $30 million, while SaaS net revenue retention (NRR) touched a healthy 107%.
With $16.6 million in Q3 sales, Sylogist reported a gross margin of 60% and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of 25.3%.
Notably, its acquisition of Mission CRM completed in 2021 has proven highly successful, with ARR growing from $140,000 to $1.9 million over the past three years, indicating an annual growth rate of 141%.
Priced at 26 times forward earnings, the Canadian penny stock trades at a discount of 50% to consensus price target estimates.
Penny stock #2
Valued at a market cap of $120 million, Pulse Seismic (TSX: PSD) is a Canadian company that specializes in acquiring, managing, and licensing seismic data for the energy industry in Western Canada.
It maintains an extensive seismic data library covering key regions in Alberta, British Columbia, and Saskatchewan, which includes over 65,310 net square kilometres of 3D seismic data and 800,000 linear kilometres of 2D seismic data. This data is then licensed to oil and natural gas companies to support their exploration and development activities.
Pulse Seismic operates in a specialized niche within Canada’s energy sector, functioning essentially as a seismic data library and licensing business. Its business model is attractive from a financial perspective as it involves relatively low ongoing operational costs once the data is acquired. For instance, Pulse Seismic can license the same data multiple times to different customers, creating recurring revenue streams.
Pulse Seismic reported mixed financial results for Q3, with lower revenue, but maintained financial stability through disciplined cost management. It reported revenue of $2.7 million in Q3, down from $5.1 million in the year-ago period.
Despite lower sales, the company maintains a strong financial position with zero debt and $7.5 million in cash as of September 30, 2024. Moreover, it pays shareholders an annual dividend of $0.11 per share, translating to a forward yield of 4.7%.
Analysts tracking the TSX stock expect adjusted earnings to expand from $0.04 in 2023 to $0.05 in 2024. Priced at 46 times earnings, Pulse remains a high-risk, high-reward investment, given its exposure to the cyclical energy sector.
