Small-cap companies, usually valued between $300 million and $2 billion, are often in the early phases of their business development and may offer substantial growth potential. However, their smaller size and limited resources make them more prone to market volatility, making them riskier investments. Therefore, investors with higher risk tolerance and longer investment horizons can acquire these stocks to reap superior returns. Against this backdrop, let’s look at two top small-cap Canadian stocks that offer attractive buying opportunities.
Source: Getty Images
Savaria
Savaria (TSX: SIS) provides accessibility solutions to individuals with physical challenges, enhancing their comfort and quality of life. It operates four manufacturing plants in Canada, two in the United States, five in Europe, two in China, and one in Mexico. Given its extensive manufacturing facilities and widespread dealer network, the company markets its products globally. Additionally, the company has also grown its business through strategic acquisitions, driving its financial performance and stock price.
Meanwhile, the aging population and rising income levels continue to expand Savaria’s addressable market. Amid the expanding addressable market, the company focuses on developing innovative products to strengthen its position. Additionally, the implementation of its “Savaria One” initiative has led to structural improvements, strengthened its production capacity, improved operational efficiencies, and generated substantial cost savings from streamlining its procurement processes.
Savaria’s management is optimistic about achieving $925 million in revenue this year, representing a 6.6% increase from the previous year. The new product launches, volume and price increase, and favourable currency translations could support its top-line growth. The management also predicts its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin to come between 17% and 20%. Considering its growth prospects, a monthly dividend payout of $0.045/share, and a reasonable next-12-month (NTM) price-to-earnings multiple of 17.6, I am bullish on Savaria.
WELL Health Technologies
My second pick is WELL Health Technologies (TSX: WELL), which develops products and services that empower healthcare professionals to positively impact patient outcomes. The tech-enabled healthcare company has been under pressure over the past few weeks, with its stock value declining by approximately 45% compared to its 52-week high. Investor concerns have intensified following an ongoing investigation into the billing practices of WELL Health’s U.S. subsidiary, Circle Medical, which has contributed to a steep decline in the company’s stock value.
However, the company posted a solid first-quarter performance last month, with its top line growing by 32% amid organic growth and acquisitions during the previous four quarters. The company had 1.6 million patient interactions during the quarter, representing a 23% increase compared to the same quarter last year. Its adjusted EBITDA attributed to shareholders increased by 29% to $20.3 million and generated adjusted free cash flows attributed to shareholders of $11.6 million.
Moreover, the growing popularity of telehealthcare services and the digitization of clinical procedures have created a multi-year growth potential for WELL Health. The company continues to launch innovative artificial intelligence-powered products to strengthen its position further. Its mergers and acquisitions pipeline also looks healthy, with the company having signed 11 letters of intent, which can contribute $65 million to its annualized revenue. Additionally, amid the recent pullback, the company’s valuation looks attractive, with its NTM price-to-sales and NTM price-to-earnings multiples at 0.9 and 9.8, respectively.
