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5 Best Small Cap Stocks Worth Investing in Canada

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Introduction

There are many ways in which you, as an investor, can improve the quality of your investment portfolio.

In many cases, investors are advised to look at the long term and only invest in stocks with proven track records, considering them safer and less volatile investments.

But It’s essential sometimes as an investor to open yourself up to short-term opportunities in order to enhance your portfolio, and this is where small-caps stocks come in.

There are two kinds of investors, the high-risk investor, looking for quick growth in the value of their portfolio and willing to take on more risk because of it, and the low-risk investor looking for much slower, less risky, but steady long-term growth in their investments.

If you are looking for high growth potential on a faster time scale, small-cap stocks are your best bet for achieving such investment goals.

Disclaimer

The equity investments are subject to market risks and may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor. So please invest at your own risk.

What Is a Small Cap Stock?

The term small cap is loosely defined and used rather liberally in investment circles, but in essence, a small cap company is one in the medium to low market capitalization bracket.

These companies have market caps that range from as low as $300m to as high as $2 billion in the stock market.

Small-cap investing offers high rewards for investors but also comes with higher risks.

Small-cap stocks are a great addition when creating a balanced and diversified portfolio of investments.

The reason small caps offer such opportunities for investors is that they are small companies and tend to be overlooked by larger institutional investors.

This allows smaller investors to get in on companies that may have explosive potential.

This, however, is a speculative affair, and the investor should take a lot more time and effort in researching these companies before investing.

This includes taking the time to understand how the company allocates its capital and assessing the quality of its management.

In today’s review, we will be highlighting several top small-cap Canadian stocks investors should look into

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Top Canadian Small-cap Stocks

Park Lawn Corporation(TSX: PLC)

The Park lawn corporation is the largest and only publicly traded funeral, cremation, and cemetery provider in Canada.

The company was founded in 1892 and has its headquarters in Toronto, Canada.

The company is the fastest-growing funeral service business in Canada and has seen consistent and sustainable growth over most of its operational history.

The Park Lawn Corporation has 127 funeral homes and 130 cemeteries and manages 22,000 graves.

The Park lawn corporation has a market capitalization of $870.23 Million.

The company has a dividend yield of 1.83%, a forward dividend yield of 1.94%, and a dividend payout ratio of 42.50%.

Since the company is involved in the death business and the advent of an increasingly aging population, its future financial prospects are essentially evergreen making it a very attractive small-cap stock consideration.

 

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Goeasy (TSE: GSY)

Goeasy ltd is an alternative financial services company founded in 1990 that went public in 1993 and has its headquarters in Mississauga, Ontario, Canada.

The company rose to popularity due to its unsecured loan products that commanded 45% interest rates.

The company also has interests in Auto financing, Furniture financing, and some secured loan services.

The company has experienced exponential growth since 2001, increasing its topline from $67 million in that year to about $825 million in 2021.

The company also grew its bottom line from $0.11 -$10.41 per share.

This growth also translated to an 8300% increase in shareholder value in the same period

Analysts expect this growth to continue making this a very attractive small-cap stock.

Pollard Banknote(TSE: PBL)

Pollard Banknote is a Canadian small-cap stock involved in making, developing, and selling charity gaming and lottery products.

The company was initially founded in 1907 as a commercial printing company and is currently based in Winnipeg, Canada.

The company currently has about 1,200 employees.

Pollard Banknote is Canada’s largest instant win scratch tickets provider, with 2/3 of the company’s revenue accounted for by the U.S market.

The firm has been exceptional in the ticket sales business through its consistency in marketing and rebranding, and this has paid off financially over its years of operations.

The company serves over 45 lotteries.

Over the past decade, from 2010 -2021, the company experienced an Ebitda growth from $18 million to $76 million, and despite a few rough spots due to economic ups and downs, this growth potential is expected to expand into the future, making it a very attractive small cap stock for investors.

Terravest Industries (TSE: TVK)

Terravest Industries is a product manufacturing company founded in 2004 and is based in Vegreville, Canada.

They are experts in steel and fiberglass product manufacturing.

They have interests in home heating products, energy processing equipment, natural gas transport, Anhydrous Ammonia Propane, storage vessels, and fiberglass storage tanks.

The company has 1,257 employees as of 2021.

Terravest Industries has a market capitalization of $412.31 Million.

The company has a dividend yield of 1.67%, a forward dividend yield of 1.70%, and a dividend payout ratio of 18.87%.

The company has exhibited sustained and consistent growth over its operational history, and its diversity of products means it’s insulated from industry shocks should they occur in the markets.

 

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Dream Office REIT (TSE: D-UN)

Dream Office Reit is a Canadian real estate investment trust company founded in 2003 and based in Toronto, Ontario, Canada.

Dream Office Reit has 37 properties and 7.3 million square feet of property in its portfolio, concentrated in Down Town Toronto, Saskatchewan, and Calgary.

The properties are primarily office buildings.

Dream Office Reit has a market cap of $802 Million

The company has a dividend yield of 6.25%, a forward dividend yield of 6.06%, and a dividend payout ratio of 23.11%.

Despite the impact of the pandemic on the office buildings sector, there is a massive surge of workers returning to office work and away from remote work, making the company poised to take advantage of these new opportunities in office real estate

Conclusion

Although not all small-cap stocks have long-term growth potential, some will offer very attractive short-term gains for investors that are able to choose them correctly.

The trick is in betting on the right horse.