Investing in profitable small-cap stocks positioned for steady growth is a proven strategy to beat the broader markets. While the TSX index trades near all-time highs, several small-cap stocks are flying under the radar. One such TSX stock is D2L (TSX:DTOL). Valued at a market cap of $1 billion, D2L provides an integrated online learning platform called Brightspace. It serves diverse sectors, including higher education, K12, healthcare, government, and enterprise clients.
The Brightspace ecosystem includes multiple interconnected solutions such as
- A core learning platform with analytics and accessibility features;
- An assignment grading tool; and
- Adaptive learning capabilities.
Its key products include Brightspace Insights for performance tracking, Brightspace LeaP for personalized learning experiences, and D2L Wave for employee skill development.
With offices across Canada, the United States, Australia, the United Kingdom, Brazil, and Singapore, D2L offers comprehensive educational technology solutions that help institutions deliver effective online and hybrid learning experiences.
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Is D2L stock a good investment right now?
In the fiscal third quarter (Q3) of 2025 (ended in October), D2L grew its subscription sales by 13% year over year to $46.8 million. Notably, its annual recurring revenue surpassed $200 million for the first time in fiscal Q3. Moreover, D2L demonstrated strong profitability metrics in Q3 with an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and free cash flow of $10.4 million and $11.3 million, respectively.
D2L continues to expand its product offerings with the successful launch of D2ALLumi, an artificial intelligence (AI) offering, and Creator Plus. The acquisition of H5P enhanced the company’s interactive engagement software capabilities, with major institutions like the University of Hawaii already adopting the new Creator Plus platform.
D2L emphasized that its market expansion efforts proved successful, as it maintained a 50% win rate in higher education opportunities. Notable wins included Prairie View A&M University and Cincinnati State, while international expansion continued in Brazil with XP College.
The company also strengthened its presence in the corporate market, particularly in healthcare training. Customer success stories were highlighted by the American College of Financial Services, which reported an 18% year-over-year increase in undergraduate conferrals and a 13% increase in graduate degree conferrals, along with improved course design efficiency using Creator Plus and D2Loomi.
Looking ahead, D2L raised its fiscal guidance, projecting subscription revenue of $180 million. At the midpoint estimate, it forecasted total fiscal 2025 sales at $204.5 million with adjusted EBITDA of $26 million.
In Q3, its operating expenses accounted for 60% of sales, down from 70% in the year-ago period. Further, it improved gross profit margins in subscription and professional services, driving the bottom line higher.
Is the TSX stock undervalued?
Analysts tracking D2L expect revenue to increase from $182.38 million in fiscal 2024 to $226 million in 2026. Its free cash flow is forecast to grow from $9.93 million to $33.5 million in this period. So, priced at 30 times forward FCF, DTOL stock is reasonably valued and should outpace the broader markets over the next 12 months.
D2L maintains a debt-free balance sheet and has returned 74% to shareholders in the past year. Analysts remain bullish and expect the TSX tech stock to gain over 15% in the next 12 months, given consensus price target estimates.
Strategically, D2L focuses on AI integration, market share expansion, and operational efficiency while maintaining growth. Its balanced approach to growth and profitability, combined with investments in innovation, suggests a strong foundation for future success.
