Underrated Canadian Small-Cap Stocks Worth Watching

ByDan Kent Published On:

Key takeaways

Small-cap stocks offer high-growth potential but come with volatility. Unlike large-cap stocks, small-cap companies are often in their expansion phase, meaning they can deliver outsized returns—but they’re also more susceptible to market swings and economic downturns.

Diversification across industries helps manage risk. This list of top Canadian small caps includes companies from finance, construction, healthcare, tech, and industrials, showing that opportunities exist across various sectors. Investors can mitigate risk by spreading their small-cap exposure across multiple industries.

Macroeconomic trends play a big role in small-cap success. Factors like government spending (Bird Construction), commodity prices (Sprott), aging demographics (Savaria), and digital transformation (Docebo) all significantly impact these stocks. Keeping an eye on broader trends can help investors navigate small-cap investing more effectively.

3 stocks I like better than the ones on this list.

Serious investors know that **small-cap stocks are a must** in any good portfolio. The chance for high returns makes them impossible to overlook.

Various studies prove the best Canadian small-cap stocks tend to outperform larger Canadian stocks over the long term.

There are several reasons for this, including better growth potential, more attractive valuations, momentum potential when investors fall in love with an individual stock, and lower levels of liquidity.

The top Canadian small cap stocks to be buying right now

A Leader in Precious Metals Investing

Sprott Inc (TSE:SII)

Sprott is a global asset management firm specializing in precious metals and real assets. The company offers a range of investment products, including ETFs, private equity, and managed funds, catering to both retail and institutional investors. With a strong presence in the gold and uranium markets, Sprott benefits from rising demand for hard assets as a hedge against inflation and economic uncertainty.

P/E: 23.3

5 Yr Revenue Growth: 17.9%

5 Yr Earnings Growth: 36.7%

5 Yr Dividend Growth: 3.1%

Yield: 2.5%

  • Thesis:
  • Strong position in precious metals: Sprott is a go-to name for investors looking to gain exposure to gold, silver, and uranium.
  • Growing institutional interest in commodities: More funds are looking to allocate capital to real assets, benefiting Sprott’s fund inflows.
  • Uranium exposure is a unique advantage: As nuclear energy gains traction, Sprott’s uranium trust is in high demand.
  • Recurring revenue model: The company earns management fees, providing stable cash flow.
  • Well-managed balance sheet: The firm maintains a conservative financial strategy, reducing risk in volatile markets.
  • Potential for expansion: Sprott continues to launch new products and expand internationally.
  • Gold and silver prices: Sprott’s revenue is tied to the performance of precious metals.
  • Uranium market growth: Increasing nuclear energy adoption supports higher uranium demand.
  • ETF inflows: Growth in alternative investments is key to Sprott’s success.
  • M&A activity: The firm could acquire complementary asset managers to expand its offerings.
  • Commodity price volatility: A downturn in metals could impact assets under management.
  • Regulatory changes: New investment rules could affect Sprott’s product lineup.
  • Competition: Larger asset managers could capture market share.
  • Investor sentiment swings: A shift away from hard assets could reduce fund inflows.

A Transformer Manufacturer on the Rise

Hammond Power Solutions (TSE:HPS.A)

Hammond Power Solutions is a North American leader in the design and manufacturing of electrical transformers. The company serves industries such as renewable energy, data centers, and industrial automation, all of which are seeing rising demand for power infrastructure.

P/E: 13.2

5 Yr Revenue Growth: 17.1%

5 Yr Earnings Growth: 43.4%

5 Yr Dividend Growth: 28.3%

Yield: 1.4%

  • Booming electrification trends: More industries require reliable power solutions, benefiting Hammond.
  • Strong market positioning: It holds a dominant share in North America.
  • Growth in renewables and EV infrastructure: Transformers are critical for power grids adapting to new energy sources.
  • Expanding margins: Cost efficiencies and pricing power have boosted profitability.
  • Long-term contracts provide stability: The company secures steady revenue from large projects.
  • Global expansion potential: Hammond has been increasing its presence outside North America.
  • Renewable energy investments: More wind and solar projects mean higher demand for transformers.
  • Data center expansion: The rise of cloud computing and AI is driving power infrastructure growth.
  • Supply chain stability: Component costs and availability impact profitability.
  • Government incentives: Policies supporting electrification could boost business.
  • Raw material costs: Rising prices for copper and steel could pressure margins.
  • Competition from global players: Larger firms could eat into market share.
  • Economic slowdowns: Less industrial activity could reduce transformer demand.
  • Currency fluctuations: As Hammond expands globally, exchange rates could impact earnings.

A Logistics Leader for the Healthcare Industry

Andlauer Healthcare (TSE:AND)

Andlauer Healthcare is a specialized supply chain and logistics company focused on the healthcare sector. It provides transportation, warehousing, and distribution services for pharmaceuticals and medical supplies, making it a critical player in a highly regulated industry.

P/E: 25.2

5 Yr Revenue Growth: 17.5%

5 Yr Earnings Growth: 14.9%

5 Yr Dividend Growth: -%

Yield: 1.1%

  • Essential service provider: The healthcare sector always needs reliable logistics.
  • Defensive business model: Demand for medical supplies is steady even in downturns.
  • Strong industry relationships: Long-term contracts with major healthcare companies provide stability.
  • Expansion into new markets: The company is growing its North American footprint.
  • Technology-driven efficiencies: Investments in automation are improving margins.
  • Resilient financials: Consistent revenue growth and strong cash flow support expansion.
  • Healthcare supply chain shifts: Changes in distribution models could impact operations.
  • New drug approvals: More pharmaceutical products mean more logistics demand.
  • Regulatory updates: Compliance with industry regulations is crucial.
  • E-commerce healthcare growth: Direct-to-patient shipping could be a growth avenue.
  • Regulatory risks: Stricter rules could increase costs.
  • Customer concentration: Losing major contracts would be a big setback.
  • Operational disruptions: Delays or supply chain issues could impact revenue.
  • Rising fuel costs: Higher transportation costs could squeeze margins.

A Fast-Growing Specialty Insurer

Trisura Group (TSE:TSU)

Trisura is a specialty insurance provider with a focus on surety, risk solutions, and reinsurance. The company has rapidly expanded its market share by offering niche insurance products.

P/E: 17.2

5 Yr Revenue Growth: 41.5%

5 Yr Earnings Growth: 70.0%

5 Yr Dividend Growth: -%

Yield: -%

  • Growing demand for specialized insurance: Trisura provides coverage in niche areas where traditional insurers don’t compete aggressively, giving it pricing power.
  • Strong U.S. expansion: The company’s fronting insurance model, where it underwrites policies and partners with reinsurers to share the risk, has seen impressive growth in the U.S. market.
  • Asset-light model with high margins: Unlike traditional insurers that carry significant balance sheet risk, Trisura’s fronting model allows it to generate strong returns with lower capital requirements.
  • Steady revenue from recurring premiums: As an insurance provider, Trisura benefits from recurring revenue streams, providing financial stability.
  • Highly scalable business model: The company can grow its premiums significantly without a proportional increase in costs, improving profitability.
  • Solid balance sheet with growth runway: Trisura has been conservative with debt while expanding its business, maintaining financial flexibility.
  • Insurance pricing cycles: Hardening insurance markets (higher premiums due to increased risks) tend to benefit Trisura’s margins.
  • Regulatory changes: As a specialty insurer, Trisura must adapt to evolving insurance regulations in Canada and the U.S.
  • Growth in fronting insurance: More insurers are looking for partners to offload risk, which supports Trisura’s expansion.
  • M&A opportunities: The company could acquire smaller specialty insurers to accelerate growth.
  • Catastrophic loss exposure: Although Trisura offloads much of its risk to reinsurers, extreme events could still impact its profitability.
  • Economic downturns impacting premiums: During economic slowdowns, businesses may cut back on insurance coverage, affecting growth.
  • Reinsurance market volatility: If reinsurers demand higher rates or pull back from certain markets, Trisura’s business model could be affected.
  • Competition from larger insurers: While Trisura operates in a niche, larger firms could attempt to enter its markets, increasing pricing pressure.

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A Leader in Mobility and Accessibility Solutions

Savaria (TSE:SIS)

Savaria is a global leader in accessibility solutions, including stairlifts, wheelchair lifts, and home elevators. The company’s products cater to aging populations and individuals with mobility challenges, making it a defensive investment tied to long-term demographic trends.

P/E: 23.9

5 Yr Revenue Growth: 18.3%

5 Yr Earnings Growth: 5.1%

5 Yr Dividend Growth: 4.0%

Yield: 3.3%

  • Aging demographics drive demand: As populations in North America and Europe age, the need for home accessibility solutions is increasing.
  • Global expansion into new markets: Savaria has been expanding internationally, particularly in the U.S. and Europe, where accessibility laws are becoming stricter.
  • Strong brand and product innovation: The company is recognized as a leader in mobility solutions, with ongoing investment in new products.
  • Recurring revenue from maintenance services: Many of Savaria’s products require ongoing servicing, creating a stable revenue stream.
  • Government incentives for accessibility improvements: Many countries offer subsidies or tax incentives for installing home elevators and lifts.
  • Acquisitions supporting growth: Savaria has been growing through strategic acquisitions, allowing it to expand its market share.
  • Government policies on accessibility: Changes in legislation could impact demand for Savaria’s products.
  • Real estate trends: More homeowners are opting to retrofit homes rather than move, benefiting Savaria.
  • Healthcare partnerships: Collaborations with hospitals and rehabilitation centers could open new revenue streams.
  • Innovation in home accessibility: New technologies, such as smart stairlifts, could enhance Savaria’s product offerings.
  • Supply chain disruptions affecting production: Delays in getting components could slow sales growth.
  • Regulatory changes in the accessibility sector: New safety standards could increase costs or limit product offerings.
  • Economic downturns: If consumers cut back on home improvement spending, demand for stairlifts and elevators may decline.
  • Labor shortages: Skilled labor is required for product installation and servicing, and shortages could impact operations.

A Key Player in Infrastructure and Industrial Construction

Bird Construction (TSE:BDT)

Bird Construction is one of Canada’s largest construction firms, specializing in commercial, institutional, and industrial projects. The company benefits from strong government infrastructure spending and a steady backlog of contracts across multiple sectors.

P/E: 11.6

5 Yr Revenue Growth: 19.8%

5 Yr Earnings Growth: 52.9%

5 Yr Dividend Growth: 8.5%

Yield: 3.1%

  • Strong government infrastructure spending: Federal and provincial governments in Canada continue to invest heavily in roads, bridges, and public buildings, driving demand for Bird’s services.
  • Stable contract pipeline providing revenue visibility: Bird’s backlog of projects ensures consistent revenue in the coming years.
  • Diversification across sectors reduces risk: The company works in commercial, industrial, and public-sector projects, reducing reliance on any single market.
  • Growing demand for sustainable and ESG-friendly buildings: Many of Bird’s projects now include green building initiatives, which are seeing increasing demand.
  • Improved profitability through cost management: Bird has focused on improving its margins by optimizing project management and cost controls.
  • Expansion into high-growth sectors: The company is increasing its presence in energy, mining, and defense-related infrastructure.
  • Public sector contracts: Government spending on infrastructure remains a key driver for Bird’s business.
  • Labor market conditions: Skilled labor shortages in construction could impact project timelines and costs.
  • Material costs and supply chain stability: Rising costs for steel, concrete, and other materials can pressure margins.
  • ESG and green construction trends: Bird’s ability to secure environmentally friendly projects could provide a competitive edge.
  • Cost overruns and project delays: Large construction projects often face unexpected delays and cost increases, impacting profitability.
  • Labor shortages in the construction sector: A lack of skilled workers could slow down project completion times.
  • Competitive bidding process: The construction industry is highly competitive, and winning contracts at profitable margins can be challenging.
  • Economic downturns: If economic growth slows, fewer private-sector projects may be initiated.

An AI-Powered Learning Management System

Docebo (TSE:DCBO)

Docebo is a cloud-based software company specializing in corporate e-learning platforms. Its AI-driven learning management system (LMS) allows businesses to create and deliver training programs efficiently. The company has seen strong growth as more companies embrace digital training solutions.

P/E: 34.1

5 Yr Revenue Growth: 39.2%

5 Yr Earnings Growth: -%

5 Yr Dividend Growth: -%

Yield: -%

  • E-learning market growth accelerating: More businesses are shifting to online training, driving demand for Docebo’s platform.
  • AI-driven learning technology gives competitive edge: Docebo integrates artificial intelligence into its platform, offering personalized training experiences.
  • Strong customer retention and recurring revenue: The SaaS model ensures stable, recurring revenue with high customer stickiness.
  • Global expansion into new markets: Docebo has been growing its customer base internationally.
  • Strong financial position for reinvestment: The company has a solid balance sheet, allowing for continued investment in growth.
  • Partnerships with large enterprises: Docebo serves major corporations, providing credibility and long-term contracts.
  • Corporate training budgets: Companies are increasing spending on digital learning solutions.
  • AI adoption in education: More firms are looking for intelligent learning solutions.
  • International expansion: Docebo’s push into Europe and Asia could drive further growth.
  • Customer acquisition costs: Managing costs while scaling up is critical for long-term profitability.
  • Competition from larger SaaS firms: Big players like SAP and Microsoft could challenge Docebo’s market position.
  • Economic downturns: If companies cut training budgets, Docebo’s growth could slow.
  • Cybersecurity threats: As a cloud-based platform, security is a key concern.
  • Currency fluctuations: Docebo operates globally, making it sensitive to exchange rate changes.

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What exactly is a small-cap stock?

You’ll often hear the term small-cap thrown around loosely. Many investors will refer to stocks as small caps when they aren’t.

The true definition of small-cap companies is ones that have a market capitalization of $300M to $2B. A company with a market cap of less than $300M is technically a micro-cap company. Compare this to large-cap stocks, which can have market caps of over $1 trillion.

Another common misconception is that small-cap stocks must trade on smaller exchanges like the TSX Venture Exchange. In reality, many small-cap Canadian stocks, including every single one we discuss below, trade on Canada’s primary index, the Toronto Stock Exchange.

Plenty of small-cap stocks are trading south on the New York Stock Exchange as well. Suppose you’re new and just learning how to buy stocks. In that case, the secret to crushing the overall stock market using small-cap stocks is identifying companies with significant potential that many other investors haven’t identified.

Since large-caps are followed by more people, it’s unlikely you’ll find that edge in larger companies. 

Small-time investors like you and me can quickly build up a significant position in the company and then wait until institutional investors discover the name. That’s when the real magic starts to happen.

However, they do require more patience in a volatile market. Canadians must understand that small caps are not for those who have low-risk tolerances. They can have large swings in price, and Wall Street can be pretty vicious during times of uncertainty.

If you’re still interested, let’s take a closer look at seven of the best Canadian small-cap stocks, the kinds of companies that can put a real jolt into your portfolio.

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