The Canadian market has been closely watching global economic indicators, particularly the recent discussions at the U.S. Federal Reserve's annual symposium in Jackson Hole, which have kept markets in a state of anticipation. As investors await clearer signals on monetary policy, small-cap stocks present unique opportunities for those looking to uncover potential growth amidst broader market uncertainties. In this environment, identifying promising small-cap stocks involves looking for companies with strong fundamentals and resilience to economic shifts. Here are three lesser-known Canadian small caps that could be poised for success.
Top 10 Undiscovered Gems With Strong Fundamentals In Canada
Overview: Freehold Royalties Ltd. focuses on acquiring and managing royalty interests in crude oil, natural gas, natural gas liquids, and potash properties across Western Canada and the United States, with a market cap of CA$2.09 billion.
Operations: Freehold Royalties Ltd. generates revenue primarily from its oil and gas exploration and production segment, amounting to CA$323.04 million.
Freehold Royalties, trading at 58.3% below its estimated fair value, reported Q2 net income of C$39.3M, up from C$24.26M last year. Basic earnings per share rose to C$0.26 from C$0.16 a year ago, while total production increased 4% quarter-over-quarter to 15,221 boe/d. The company's debt-to-equity ratio stands at 24.6%, with interest payments well covered by EBIT (15x). Despite negative earnings growth of -5.9%, Freehold's high-quality past earnings and satisfactory debt levels make it noteworthy in the oil and gas sector.
Overview: Leon's Furniture Limited, along with its subsidiaries, operates as a retailer of home furnishings, mattresses, appliances, and electronics in Canada with a market cap of CA$2.04 billion.
Operations: Leon's Furniture Limited generates revenue primarily from the sale of home furnishings, mattresses, appliances, and electronics amounting to CA$2.53 billion. The company has a market cap of CA$2.04 billion.
Leon's Furniture, a small-cap player in the Canadian market, has shown robust performance with net income rising to CAD 30.17 million in Q2 2024 from CAD 27.42 million last year. The debt-to-equity ratio improved significantly from 20.4% to 10.4% over five years, and the company is trading at a good value compared to peers and industry standards. Additionally, Leon's announced an increased quarterly dividend of CAD 0.20 per share payable on October 7, reflecting its strong financial health and commitment to shareholder returns.
Overview: Payfare Inc. is a financial technology company that offers instant payout and digital banking solutions to gig economy workers in Canada, the United States, and Mexico, with a market cap of CA$383.25 million.
Operations: Payfare Inc. generates revenue primarily from its Internet Software & Services segment, amounting to CA$205.11 million.
Payfare has shown impressive financial growth, with earnings surging 259.9% over the past year, outpacing the Diversified Financial industry’s 8.5%. The company reported second-quarter sales of CAD 55.99 million, up from CAD 46.51 million a year ago, and net income rose to CAD 4.9 million from CAD 2.11 million last year. Additionally, Payfare repurchased 39,300 shares for CAD 0.19 million recently and remains debt-free with high-quality earnings and positive free cash flow.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include TSX:FRU TSX:LNF and TSX:PAY.
