Small-cap stocks will have a market capitalization between $300 million and $2 billion. Given their smaller size, these companies have a greater scope for expansion, thus growing their financials at a higher rate and delivering superior returns in the long run. However, small-cap stocks are highly susceptible to market volatility, making them riskier. So, investors with higher risk-tolerance abilities can buy these stocks to earn superior returns in the long run.
Having discussed the features of small-cap stocks, here are my three top picks.
Savaria
Savaria (TSX:SIS), which offers accessibility solutions to the physically challenged, is trading 10% higher for this year. The improvement in the macro environment appears to have driven the company’s stock price higher. Despite the surge, its valuation looks reasonable, with its forward price-to-earnings and forward price-to-sales multiples at 21.1 and 1.3, respectively.
The growing aging population and governments’ investment in healthcare infrastructure have created long-term growth potential for Savaria. Given its comprehensive product lines across its business segments, global manufacturing network, and extensive dealer network, the company is well-positioned to benefit from addressable market expansion. Besides, the improving synergies between Savaria and Handicare and price hikes could support its financial growth in the coming quarters. Amid these growth initiatives, the company’s management is confident of achieving $1 billion in revenue in 2025.
Further, Savaria pays a monthly dividend of $0.0433/share, with its forward yield at 3.13%. Given the visibility of its growth prospects, attractive valuation, and healthy dividend yield, I believe Savaria would be an excellent buy right now.
WELL Health Technologies
Second on my list would be WELL Health Technologies (TSX:WELL), which offers healthcare professionals technology and services to enhance patient experiences. Its addressable market is expanding amid the digitization of clinical procedures and increased adoption of telehealthcare services. Besides, the digital healthcare company is developing innovative products and making strategic acquisitions to drive its growth. It is currently working on acquiring 30 clinics through mergers and acquisition activities and 13 clinics through the absorption method.
Further, the digital healthcare company is optimizing its cost structure and enhanced operational efficiency to drive profitability. It has adopted several strategies to optimize its expenses, including tech enablement, automation, and artificial intelligence. Bolstered by these initiatives, the company’s management expects its top line to reach $900 million this year while improving its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and cash flow.
Besides, WELL Health currently trades at NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 1.1 and 15.2, respectively, making it an attractive buy.
Pizza Pizza Royalty
Another top small-cap stock I am bullish on would be Pizza Pizza Royalty (TSX:PZA), which operates a highly franchised restaurant business. It collects royalties from its franchisees based on their sales. So, its financials are less susceptible to an inflationary environment. Given its asset-light business model and stable cash flows, the company is well-positioned to reward its shareholders with consistent dividend growth. Last year, it raised its monthly dividend three times. Currently, the Toronto-based company pays a monthly dividend of $0.0775/share, with its forward yield at 6.49%.
Further, the company added around 45 new restaurants to its royalty pool from January 1 while removing 14 stores that had closed their operations. It is also constructing new restaurants and renovating its old restaurants. Besides, new product launches and marketing initiatives could continue to drive same-store sales and financials, making it an attractive buy.
