Small-cap companies are usually young companies that offer higher growth prospects. However, the financials of these companies are highly susceptible to market volatility, making them riskier. So, investors with higher risk tolerance abilities should buy these stocks to reap superior returns over the long run. Meanwhile, let’s look at my three top small-cap picks.
Source: Getty Images
Savaria
Savaria (TSX:SIS) is an accessibility solution provider with production facilities in Canada, the United States, Mexico, Europe, and China. It also has a solid dealer network and direct sales offices worldwide, driving its sales. Last year, the company generated a revenue of $867.8 million, representing a 3.7% increase from the previous year. Solid organic growth and favourable currency translation more than offset the negative impact of divestments to drive Savaria’s sales. Amid topline growth and expansion of operating margins, its adjusted EPS (earnings per share) grew 38.5% to $0.90. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin also expanded by 310 basis points to 18.6%.
Meanwhile, the demand for accessibility solutions continues to rise amid the aging population. Its innovative product development, production capacity expansion, and cost savings from streamlined procurement through its Savaria One project could support its financial growth in the coming quarters. The company’s management projects its topline to grow 6.6% this year, while its adjusted EBITDA margin could fall between 17-20%. The company offers a forward dividend yield of 3.18% and trades at an attractive NTM (next-12-month) price-to-sales multiple of 1.3, making it an excellent buy.
WELL Health Technologies
Another small-cap stock I am bullish on is WELL Health Technologies (TSX:WELL). It offers products and services that would aid healthcare providers in delivering positive patient outcomes and enhancing patient experience. The digitization of clinical procedures, the growing popularity of virtual healthcare services, and the increased adoption of software services in the healthcare sector have expanded WELL Health’s addressable market.
Moreover, WELL Health continues to develop innovative products to strengthen its position in the digital healthcare space. The company has acquired 18 assets with a total annualized revenue of $130 million since December. The acquisition of Microquest and Bluebird iT in February has strengthened its EMR (electronic medical record) and IT solutions business. Further, the company has a solid acquisition pipeline of 165 clinics that can add around $440 million to its annual revenue. Considering its growth prospects, I expect WELL Health to continue its financial growth, thus supporting its stock price growth in the coming quarters.
Extendicare
The Canadian population above 85 could grow at a 4% CAGR (compound annual growth rate) to reach 2.79 million by 2051, thus expanding the demand for long-term-care (LTC) and home healthcare services. So, as my final pick, I have chosen Extendicare (TSX:EXE), which offers care and services to seniors across Canada. The government contracts, which form 90% of Extendicare’s revenue, insulate its financials from market volatility.
Moreover, the company is expanding its asset base through organic growth, joint ventures, and acquisitions. In December, it started constructing two new LTC projects in Ontario, a 128-bed home in Port Stanley and a 192-bed home in London, replacing 230 Class C beds. The company’s management hopes to complete them in the first half of 2027. In a joint venture with Axium, the company opened a 192-bed home in Kingston and a 256-bed home in Stittsville in December. Further, the company has agreed to acquire nine Class C LTC homes from Revera. The company expects to complete the acquisition in the second quarter of this year, expanding its portfolio by 1,396 beds.
Considering Extendicare’s expanding addressable market and growth initiatives, I expect the uptrend in its financials to continue, thus supporting its stock price growth and monthly dividend payouts. It currently offers a forward dividend yield of 3.84%. Further, the company’s valuation looks reasonable, with its NTM price-to-sales multiple at 0.7.
