Canada is a wonderful place to look for unloved stock with incredible potential. Canadian stocks just don’t get the same attention (or valuations) as their American peers.
Yet, this can create a wonderful arbitrage opportunity. You can find just as good (or better) companies in Canada, and they often trade at a discount to their American peers. Use that to profit. Here are five under-the-radar stocks with great growth potential today.
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A small-cap aerospace stock
Firan Technology (TSX: FTG) is about as under the radar as they come. This $291 million Canadian stock is a provider of specialized cockpit components and circuits for the aerospace industry. These are hardly exciting products. Yet, Firan has carved an effective niche in the industry.
Firan has used wise acquisitions to expand its customer base and product assortment. Over the past three years, revenues have risen by a 29% compounded annual growth rate (CAGR), and earnings before interest, tax, depreciation, and amortization (EBITDA) have increased by a 21% CAGR.
This Canadian stock is up 419% in that time. While its valuation has improved in recent years, it still trades at a significant discount to other quality aerospace peers.
A play on the energy transition
Another Canadian stock that is under the radar is Hammond Power Solutions (TSX: HPS.A). It has a market cap of $1.43 billion. It manufactures power transformers used in manufacturing facilities, data centres, car charging stations, and commercial buildings.
Hammond has been one of the best-performing stocks in Canada over the past several years. Its stock is up 1,744% in the past five years and 600% in the past three years.
Electrification and rising data centre demand have been a huge tailwind for Hammond. In the past three years, revenues have risen by a 20% CAGR while earnings per share increased by a 50% CAGR. It trades for 16.5 times earnings, which looks like a fair valuation right now.
A top Canadian fintech stock
Propel Holdings (TSX: PRL) is a Canadian growth stock that still trades under the radar in Canada. Propel operates lending platforms focused on non-prime consumers in the U.S., Canada, and the U.K.
The company uses artificial intelligence to analyze hundreds of data points for its customers. As a result, it can underwrite loans very quickly and profitably. The company is growing revenues and EBITDA by a 30-40% rate.
Yet, it trades for a mid-teens earnings multiple. Catalysts include earnings and margin growth for its U.K. acquisition, expanding lending-as-a-service business, and general growing demand for non-prime loans as bigger banks tighten underwriting policies.
A Canadian industrial compounder stock
TerraVest Industries (TSX: TVK) is not a growth stock on many Canadians’ radars. However, with an 850% return in the past five years, it’s a stock that should pique investors’ interest.
TerraVest operates largely mundane industrial businesses. However, TerraVest’s secret sauce is its smart operating capabilities, complemented by its aggressive acquisition strategy.
It can acquire these industrial businesses at very attractive valuations. It then uses its scale and operating expertise to increase margins and expand sales across North America.
While its valuation has risen in the past few years, the stock has recently pulled back. If you believe it can continue to execute in the future like it has in the past, you are wise to add it on any significant dips.
