Small-cap companies, typically valued between $300 million and $2 billion, are known for offering more substantial growth potential than larger, more established firms. However, these companies are also more sensitive to market volatility, making them relatively riskier investments. Therefore, small-cap stocks are best suited for investors with a higher risk tolerance and a long-term investment horizon. With that in mind, let’s take a closer look at two promising small-cap stocks that I’m currently bullish on.
Extendicare
Extendicare (TSX:EXE), which offers care and services to Canadian seniors through various brand names, has delivered over 75% of returns this year. Solid quarterly performances and continued acquisitions have boosted investors’ confidence, driving its stock price. In the recently reported third-quarter results, its revenue, excluding the impact of out-of-period LTC (long-term-care) funding, stood at $436.4 million, representing a 22.1% increase from the same quarter in the previous year.
The acquisition of nine LTC homes, contributions from the Closing the Gap acquisition, growth in average daily volumes in its home healthcare segment, and higher LTC funding drove its sales. However, the closure of two Class C LTC homes partially offset some of the gains.
Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and net income grew by 36.6% and 48%, respectively. Adjusted funds from operations per share rose 27.4% year over year to $0.349. The company concluded the quarter with $165.7 million in cash and cash equivalents as well as access to an additional $154.0 million through its revolving credit facility, providing ample liquidity to support its growth initiatives.
Looking ahead, Canada’s aging population is expanding the addressable market for Extendicare’s services. The company remains focused on growing through a combination of organic growth and strategic acquisitions, which should strengthen its financial performance in the years ahead. Additionally, Extendicare offers a monthly dividend with a current yield of 2.3% and trades at an attractive next 12 months (NTM) price-to-earnings multiple of 17.6, making it an appealing investment opportunity.
5N Plus
Another small-cap stock that I believe offers an attractive long-term investment opportunity is 5N Plus (TSX:VNP), a company engaged in the development, manufacturing, and marketing of specialty semiconductors and performance materials. Backed by its impressive quarterly performances and high-growth prospects, the company has returned around 180% this year.
In its recently reported third-quarter results, 5N Plus posted revenue of $104.9 million, marking a 33% year-over-year increase and its highest quarterly revenue in a decade. Robust sales growth in its specialty semiconductors segment, supported by rising demand from the terrestrial renewable energy and space solar power markets, as well as higher pricing for bismuth-based products within its performance materials division, drove its topline. Meanwhile, adjusted EBITDA and net income surged 86% and 184%, respectively, benefiting from top-line growth and a 580-basis-point improvement in gross margin. Backed by its solid financial performance, the company reduced its net debt from $100.1 million at the beginning of the year to $63.3 million, bringing its net-debt-to-EBITDA ratio down to a healthy 0.74.
Meanwhile, the growing terrestrial renewable energy sector and space solar power market have created a long-term growth potential for 5N Plus. Given its global presence, strong sourcing capabilities, and high-quality product portfolio, the company continues to strengthen its position in this shifting geopolitical landscape. Despite its solid financial performances and healthier growth prospects, the company’s valuation looks reasonable, with its NTM price-to-earnings multiple of 24.8, making it an excellent buy.
