Investing in quality undervalued TSX stocks should help long-term shareholders generate outsized gains once market sentiment improves. In this article, I have identified two quality undervalued TSX stocks that Canadian investors should consider holding right now.

Is this TSX tech stock undervalued?

Valued at a market cap of $1.3 billion, Enghouse (TSX:ENGH) develops enterprise software solutions to facilitate remote work, enhance customer communications, and increase efficiency.

Enghouse Systems posted modest revenue growth in its fiscal first quarter (Q1) of 2025 (ended in January) as the technology company continues to focus on profitability amid global economic uncertainty and industry headwinds.

The Canadian software company reported revenue of $124 million in the first quarter, a 2.9% increase from $120.5 million in the same period last year. Net income rose to $21.9 million, or $0.40 per diluted share, compared to $18.1 million, or $0.33 per diluted share, in the year-ago period.

Recurring revenue, which includes SaaS (software-as-a-service) and maintenance services, grew 4% to $87.9 million and now represents nearly 71% of total revenue. However, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) decreased slightly to $33.1 million from $34.7 million while maintaining a 26.7% margin.

Enghouse completed the acquisition of Aculab PLC in December 2024, adding artificial intelligence-driven technologies and communications Platform as a Service offerings to its Interactive Management Group. It also announced the acquisition of Margento R&D, a European provider of transit fare collection and payment solutions, in early March.

Enghouse ended fiscal Q1 with $271.1 million in cash and no outstanding debt. It also returned $14.4 million to shareholders through dividends and repurchased $6 million in shares during the quarter.

The company approved a 15.4% increase in the quarterly dividend to $0.30 per share, marking its 17th consecutive year of dividend increases.

ENGH stock is relatively cheap, given it is forecast to report a free cash flow of $120 million in fiscal 2025. So, priced at 10 times forward FCF, the TSX tech stock trades at a 16% discount to consensus price targets. After accounting for dividend reinvestments, cumulative returns could be closer to 21%.

Is the small-cap TSX stock a good buy right now?

Propel Holdings (TSX:PRL) is another cheap TSX stock you should consider owning in 2025. Operating in the financial lending segment, Propel has increased its sales from $60.2 million in 2018 to $450 million in 2024.

Propel Holdings delivered record financial results for Q4 and full year 2024, with the fintech lender expanding its reach through strategic acquisitions and new partnerships amid growing demand for its services.

Propel reported revenue of $129.3 million for Q4, up 35% year over year, while adjusted net income surged 67% to $16.9 million. For the full year, revenue grew by 42% year over year, while adjusted net income rose by 75% to $62.3 million.

Propel completed its first acquisition outside North America in November, purchasing U.K.-based QuidMarket. Early results show strong performance, with Propel expecting the U.K. business to grow approximately 40% in 2025.

Propel’s core lending business continues to benefit from traditional financial institutions tightening their underwriting standards. The company cited Federal Reserve Bank of New York data showing credit application rejection rates at 21%, up from pre-pandemic levels of 18%.

Looking ahead, Propel expects revenue between $590 million and $650 million, representing growth of 31% to 45%. Propel estimates its adjusted net income margin to increase to between 13.25% and 16.25%, up from 14% in 2024. It also raised the quarterly dividend by 10% to $0.165 per share, marking the fifth consecutive quarterly increase in the dividend.

PRL stock has more than doubled shareholder returns since its initial public offering in October 2021. Despite these outsized gains, the TSX stock trades 43% below all-time highs, allowing you to buy the dip.

Priced at 11 times forward earnings, the TSX stock trades at a 65% discount to consensus estimates in April 2025.

The post 2 Undervalued TSX Gems Canadian Investors Should Grab Now appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enghouse Systems and Propel. The Motley Fool has a disclosure policy.