The TSX has gained traction, advancing plus-5.1% to 24,192.81 in the last five trading days or before the Easter long weekend. But despite the surge, several Canadian value stocks trade below their fair values. A pair of small-cap stocks, in particular, are the top buys right now for their unique value propositions.
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Market leader
Pason Systems (TSX: PSI) operates in the oil and gas drilling industry. The $887.8 million energy services and technology company provides specialized data management systems for drilling rigs globally. It also develops and delivers high-value hardware, software, and services to clients.
Because of its distinctive technology and capability set, management believes Pason Systems is a game-changer and clear market leader. Its solutions include data acquisition, wellsite reporting, remote communications, and web-based information management. The solutions enable better coordination between the rig and the office.
In Q4 and full-year 2024, net income rose 107% and 25% year-over-year to $16.6 million and $119.7 million, respectively. Pason ended the year with $80.8 million in cash and a strong balance sheet (no interest-bearing debt).
Its President and CEO, Jon Faber, said, “The macro environment is currently characterized by increased volatility and uncertainty, which can present both opportunities and challenges for our business.” Still, industry activity this year should be similar to 2024. “Strong bookings of control system sales in our Solar and Energy Storage segment in 2024 are expected to translate into further revenue gains in 2025,” Faber added.
At $11.21 per share, the energy stock is down -16.8% year-to-date, although the dividend compensates for the temporary weakness. If you invest today, the yield is 4.6%. According to Faber, Pason will maintain its current quarterly dividend ($0.13 per share) and continue repurchasing shares, notwithstanding the uncertain environment.
Pioneer in business communications
Sangoma Technologies (TSX: STC) is a cheaper alternative to capitalize on the artificial intelligence (AI) trend. This TSX tech stock is undervalued at $6.50 per share (-35% year-to-date). However, market analysts are bullish. Based on their 12-month average price target of $12.76, the upside potential is 96.3%.
The $218.4 million provides Communications-as-a-Service products for businesses and considers itself the pioneer in business communications. More than 100,000 customers, including NASA, trust its cloud, hybrid, and on-premises communications platform. The company unveiled Sangoma Gen AI within its proprietary platform in January of this year.
In the first half of fiscal 2025 (six months ending December 31, 2024), net loss improved plus-33.3% year-over-to US$3.8 million. The operating cash flow during the same period rose 41.1% to US$24 million from a year ago. More importantly, Sangoma has achieved its debt target of $55 to $60 million ahead of schedule. At the end of Q2 fiscal 2025, debt stands at US$37.6 million or 35.1% lower than in Q1 fiscal 2025.
According to its CEO, Charles Salameh, the successful debt reduction strategy enhances shareholder value. “Our improved capital structure allows us to take decisive action to accelerate strategic alternatives, which will further solidify our position as a highly profitable recurring revenue-driven business, and enable faster innovation through both internal development and acquisitions.
Strong buys
Pason Systems and Sangoma Technologies are attractive buying opportunities. The financial reward should be enormous once the stocks rise or reach their actual value.
