Investing in small-cap undervalued stocks can help you generate outsized gains over time. In this article, I have identified two such Canadian value stocks you can buy right now and hold over the next decade.
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Is the undervalued TSX stock a good buy?
Valued at a market cap of $100 million, Colabor Group (TSX: GCL) markets and distributes food and food-related products in Canada. In the fourth quarter (Q4) of 2024, it reported a revenue of $202.6 million, an increase of 3.2% year over year. Despite challenging macro conditions in the restaurant sector, Colabor’s distribution segment grew 5.6%, offsetting a 3.8% decline in wholesale activities.
“Our fourth quarter and full year results demonstrate that we can win even in a challenging macroeconomic environment,” said Louis Frenet, president and chief executive officer, during the Q4 earnings call.
Despite the sales increase, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margins contracted slightly to 5.6% from 5.9% in the prior-year quarter, reflecting pressure from weakened restaurant spending.
Colabor’s strategic diversification within the Quebec market appears to be paying dividends. It recently announced a significant $51.5 million acquisition of certain distribution assets from Alain Plus, adding approximately $225 million in annual revenue once the deal closes in 2025.
The acquisition will increase Colabor’s market share in Quebec’s food service market from 11% to 16%. It will also shift its customer mix, with restaurants and retail increasing to 58% of revenues from 48% previously, while wholesale customers will decrease to 18% from 25%.
Colabor ended 2024 with a strengthened balance sheet, reducing its net debt to $47.8 million from $61.5 million and improving its leverage ratio to 2.4 times adjusted EBITDA from 2.7 times a year earlier.
Analysts tracking the TSX stock expect sales to rise from $657 million in 2024 to $962 million in 2026. Its adjusted earnings per share is forecast to touch $0.21 per share, while free cash flow is projected at $24 million in 2026.
So, priced at four times forward free cash flow, Colabor is relatively cheap and trades at a 214% discount to price target estimates.
Is this cannabis stock a buy?
The second undervalued Canadian stock on the list is High Tide (TSXV: HITI). Valued at a market cap of $220 million, High Tide is engaged in the retail cannabis segment. It designs, manufactures, and distributes smoking accessories and cannabis lifestyle products.
High Tide’s sales increased from $83 million in the fiscal year 2020 (which ended in October) to $522 million in the fiscal year 2024. Analysts expect the top line to expand to $924 million in 2029.
Unlike several other cannabis stocks, High Tide reports a positive adjusted EBITDA. Analysts expect its EBITDA to expand to $95.8 million by 2029, indicating a margin of over 10%.
Moreover, Bay Street expects High Tide’s adjusted earnings to expand to $0.64 per share in 2029, up from $0.02 per share in 2024. If the stock is priced at 10 times forward earnings, it should more than double in the next five years.
Analysts remain bullish on the cannabis stock and expect it to surge 239.5% from current levels, given consensus price targets.
