Small-cap stocks have a market capitalization between $300 million and $2 billion. Given their smaller size, these companies have substantial scope for expansion and could deliver superior returns in the long run. However, market volatility will significantly impact their stock prices due to limited resources. So, investors with higher risk-tolerances and longer investment horizons should buy these stocks to earn superior returns. The following three stocks offer long-term growth prospects, thus delivering superior returns in the long run.
Savaria (TSX:SIS) offers mobility and accessibility solutions worldwide through its global production facilities and distribution network. With the growing aging population and rising disposable income, the demand for accessibility solutions could increase at a healthier rate in the coming years. Meanwhile, the company has strengthened its production capabilities with its strategically located Mexico facility, which is now up and running.
Besides, the accessibility solutions provider is working on better integrating its different segments and has laid out a plan for the next 24 months to achieve operational and sales excellence along the guidelines of a consulting firm. Supported by these initiatives, the companyâs management expects its 2025 revenue to cross $1 billion. Also, Savaria currently pays a monthly dividend of $0.0433/share, translating its forward yield to 3.25%. The stock trades at 1.2 times the projected sales for the next four quarters, making it an attractive buy.
Another top small-cap stock that offers high growth potential would be goeasy (TSX:GSY), which provides lending and leasing services to subprime lenders. Over the previous 20 years, the company has grown its revenue and adjusted EPS (earnings per share) at a CAGR (compound growth rate) of around 13% and 25%, respectively. Despite the strong growth, the company has acquired a small percentage of the $200 billion subprime credit market, thus offering healthy growth prospects.
Meanwhile, goeasy is working on introducing new products, strengthening its delivery channels, and venturing into new markets to drive growth. Boosted by its growth prospects, the company’s management expects its loan portfolio to grow by around 60% from June 30 levels to $5.1 billion by the end of 2025. Besides, its revenue could grow at an annualized rate of 18.5% through 2025 while delivering an over 21% return on equity annually.
The subprime lender pays a quarterly dividend of $0.96/share, with its forward yield at 3.01%, and trades at an attractive NTM (next 12 months) price-to-earnings multiple of 8.5. So, considering all these factors, I expect goeasy to deliver superior returns in the long run.
Another small-cap stock you should look to accumulate is Docebo (TSX:DCBO), which offers multi-product learning solutions to businesses worldwide. Despite the economic headwinds, the company posted solid second-quarter performance earlier this month, with its revenue growing by 25%. The net addition of 485 new customers over the last 12 months and an 8.2% increase in average contract value drove its topline. The company generated around 94% of its revenue from recurring sources, which is encouraging.
Supported by topline growth and expansion of its gross margin, Doceboâs adjusted net income came in at $4.7 million compared to a net loss of $0.7 million in the previous year’s quarter. Meanwhile, the growing adoption of e-learning platforms is expanding the addressable market for the company. Besides, the e-learning solutions provider recently acquired Edugo and Peerboard, strengthening its artificial intelligence capabilities. So, its growth prospects look healthy.
However, amid the weakness in the tech sector, Docebo trades at a considerable discount compared to its 2021 highs, making it an excellent addition to your long-term portfolio.
Before you consider Docebo, you’ll want to hear this.
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* Returns as of 8/16/23
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