Small-cap stocks could be a smart choice for investors looking for high growth potential. These are shares whose market capitalization falls between $300 million and $2 billion, offering opportunities that larger, more established companies might not.
However, small-cap stocks are relatively more risky and highly volatile, meaning their prices can fluctuate significantly. That’s why investors need to be cautious before investing. They should consider Canadian stocks, which are backed by fundamentally strong businesses with the potential to deliver sustainable earnings in the long term. With this background, let’s look at two small-cap stocks that Canadians should consider in October.
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Docebo stock
Docebo (TSX:DCBO) is a compelling small-cap stock to consider. Sporting a market cap of about $1.8 billion, Docebo is a software company offering a cloud-based learning platform. It is poised to benefit from the consistent growth in its active users, artificial intelligence (AI)-powered learning, and increased courses offered.
The company’s key performance metrics remain solid, with its recurring subscription revenue growing at a compound annual growth rate (CAGR) of 42% since 2020. Further, the average contract value has grown roughly four times since 2017. In the second quarter (Q2) of 2024, Docebo’s subscription revenue increased 22% year-over-year, accounting for 94% of total revenue. Its customer count increased by 8% to 3,898, and many users opt for multi-year contracts, which adds stability and visibility over future revenue.
Looking ahead, Docebo’s top-line growth will likely accelerate as it expands into new industries and government sectors. Additionally, the company’s upcoming product launches are expected to broaden its addressable market and increase its market share. Moreover, Docebo’s growing customer count, higher average contract value, and focus on improving operating leverage position it well to deliver sustainable earnings in the long term.
WELL Health stock
WELL Health (TSX:WELL) is another attractive small-cap stock to consider. Shares of this leading digital healthcare company are trading cheaply. Meanwhile, WELL Health continues to fire on all cylinders, delivering record revenues and profitable growth.
For instance, WELL Health’s top line surged 42% in Q2 2024, reflecting a 38% increase in patient visits. The company continues to benefit from accelerated organic growth, which includes a contribution from its efforts to recruit clinics to its network. Additionally, WELL Health continues to benefit from its strategic acquisitions, enhancing its overall performance. Notably, Q2 marked the 22nd consecutive quarter in which WELL Health delivered record revenue, reflecting continued momentum in its business.
Thanks to this solid growth, WELL Health could generate $1 billion in revenue by the end of 2024, including the contributions from its active acquisition pipeline. The company’s focus on profitability, capital efficiency, and free cash flow will allow it to fund future acquisitions, improve its financial leverage, and reduce the need for share issuances, all of which are positive for long-term investors.
In summary, WELL Health is poised to deliver stellar growth due to growing omnichannel patient visits, acquisitions, the launch of advanced AI tools, and operational efficiency. Additionally, WELL Health stock trades at a next 12-month (NTM) enterprise value-to-sales (EV/Sales) multiple of just 1.4, which is near the multi-year low, providing a solid opportunity for buying right now.
