Small-cap stocks offer higher growth potential and could deliver oversized returns in the long term. However, these companies are highly prone to market volatility, making them riskier. So, investors with higher risk-tolerance abilities can buy these stocks to earn superior returns. Against this backdrop, let’s look at my three top small-cap picks.
WELL Health Technologies
WELL Health Technologies (TSX:WELL) focuses on developing technology and services to empower healthcare providers to deliver positive patient outcomes. The growing popularity of virtual healthcare services and increased adoption of software services in the healthcare segment have created long-term growth potential for the company. Meanwhile, WELL Health is expanding its product offerings by developing new artificial intelligence-powered products.
Further, the company has announced that it will drive the pace of its growth this year to achieve the target of $4 billion in revenue from Canadian sources. It has completed 18 acquisitions since December, with an annualized revenue contribution of $130 million. Besides, it has a solid acquisition pipeline, including 165 clinics that can contribute around $440 million to its annualized revenue. Meanwhile, its near-term prospects include 19 letters of interest, with around $50 million of revenue and double-digit EBITDA (earnings before interest, taxes, depreciation, and amortization). Despite its healthy growth prospects, the company trades at a cheaper NTM (next 12 months) price-to-earnings multiple of 17.5, making it an excellent buy.
Savaria
Savaria (TSX:SIS) is another small-cap stock I am bullish on due to its solid growth prospects and healthy financials. The accessibility solutions provider posted an impressive fourth-quarter performance earlier this month, with its topline growing by 3.7%. Organic growth and favourable currency translation more than overcame the negative impact of its divestments to drive its sales. Supported by topline growth and gross margin expansion, its adjusted EBITDA grew 24% to $161.2 million. Besides, its adjusted EBITDA margin expanded 310 basis points during the quarter to 18.6%.
Moreover, I expect the demand for accessibility solutions to grow in the coming years amid the aging population and rising income levels. Through its “Savaria One” initiative, the company focuses on new product development, market share expansion, and improving profitability by driving efficiency and throughput, thus driving its financials. Meanwhile, management expects its 2025 revenue to grow by 6.6%, with its adjusted EBITDA margin between 17–20%. So, its growth prospects look healthy. Savaria also pays a monthly dividend of $0.045/share, translating into a forward dividend yield of 3.2%. Considering all these factors, I am bullish on Savaria.
Extendicare
Extendicare (TSX:EXE), which offers care and services to senior citizens across Canada, will be my final pick. Last month, the company reported an impressive fourth-quarter performance, with its topline growing by 11.8% to $391.6 million. Higher funding for its long-term care (LTC) services, growth in the average daily volume of its home health care, rate increases, and higher revenue from its managed services boosted its topline. Besides, its adjusted EBITDA and net income have grown by 38.3% and 56.8%, respectively.
Moreover, Extendicare is expanding its footprint through organic and inorganic growth. It recently opened two homes, a 192-bed home in Kingston, Ontario, and a 256-bed home in Stittsville, Ontario, in a joint venture with Axium. Further, it is working with Ravera to acquire its nine Class C LTC homes in Ontario and Manitoba, adding around 1,396 beds to its portfolio. It is also constructing two new LTC projects in Ontario, expecting to complete both projects in the first half of 2027. These growth initiatives and the rising demand for senior services could drive its financial growth in the coming years, thus supporting its future dividend payouts and stock price growth. Currently, it offers a monthly dividend of $0.042/share, translating into a forward dividend yield of 3.9%.
