Compared to the S&P 500, the Toronto Stock Exchange offers slim pickings when it comes to technology companies. The sector accounts for less than 4% of the TSX Index, which means investors really need to do their homework if they plan on venturing beyond the main large-caps.
We’ve done some of that work for you by identifying five Canadian small-cap technology stocks with plenty of upside.
Below are the small-cap Canadian technology stocks we think you should be watching, along with the key financial metrics you need to know:
- Celestica (TSX: CLS)
- Absolute Software Corporation (TSX: ABT)
- TeraGo Inc. (TSX: TGO)
- Solium Capital Inc. (TSX: SUM)
- Mediagrif Interactive Technologies (TSX: MDF)
Key Financial Metrics
|Company||Market Cap||Annual Revenue Growth||Free Cash Flow||Forward PE|
|Celestica||$1.59 bn||8.5% (Dec 2018)||-$43 mm||9.30|
|Absolute Software Corporation||$376 mm||3.3% (Jun 2018)||$10 mm||42.00|
|TeraGo Inc.||$173 mm||-1.8% (Dec 2018)||-$3 mm||-68.19|
|Solium Capital Inc.||$1.1 bn||24.1% (Dec 2018)||$10 mm||54.49|
|Mediagrif Interactive Technologies||$143 mm||3.8% (Mar 2018)||$14 mm||11.03|
Celestica (TSX: CLS)
- Market Cap: $1.59 billion
- Annual Revenue Growth: 8.5% (December 2018)
- Free Cash Flow: -$43 million
- Forward PE: 9.30
With a market cap of $1.59 billion, Celestica barely qualifies as a small-cap stock. The multinational electronics manufacturing service provides “end-to-end product lifecycle solutions” for electronics manufacturers. This means the company is highly exposed to the semiconductor industry, one of the major catalysts of the information technology sector. Although Celestica’s stock price has struggled over the past five years, it has grown faster than per-share earnings, which means investors hold the company in high regard. With a forward PE of 9.30, the stock is dirt cheap, especially when you factor the expected earnings growth of 15% over the next few years.
Absolute Software Corporation (TSX: ABT)
- Market Cap: $376 million
- Annual Revenue Growth: 3.3% (June 2018)
- Free Cash Flow: $10 million
- Forward PE: 42.00
Absolute Software Corporation has been around for 26 years but only recently made its way onto investors’ radar thanks to the rapid growth of cybersecurity. Depending on who you ask, the global cyber security market could be worth a quarter of a trillion dollars in the next four years as businesses and public organizations expand their data protection and disaster recovery efforts. Absolute Software offers data and cybersecurity management solutions to critical sectors such as healthcare and government, as well as to commercial end users. Surprisingly, the company offers a steady dividend yield that makes it one of the more attractive bets for investors looking for growth and stable earnings (Read our list of 5 tech stocks with high-yielding dividends). The stock itself has gained 20% this year to outpace the TSX.
TeraGo Inc. (TSX: TGO)
- Market Cap: $173 million
- Annual Revenue Growth: -1.8% (December 2018)
- Free Cash Flow: -$3 million
- Forward PE: -68.19
TeraGo might not seem like an attractive bet given its negative forward PE, but the company has been on an absolute tear for the past two years. Investors able to ride out short-term volatility for long-term growth will find the cloud infrastructure company highly attractive. Case in point: TeraGo was the best performing technology stock on the TSX in 2018, growing 143.3%. In addition to expanding its managed cloud services, TeraGo is betting big on 5G, which is the new standard for wireless coverage in densely populated areas. The company already has a strong presence in Canada’s six largest cities, which makes its 5G rollout especially promising.
Solium Capital Inc. (TSX: SUM)
- Market Cap: $1.1 billion
- Annual Revenue Growth: 24.1% (December 2018)
- Free Cash Flow: $10 million
- Forward PE: 54.49
Solium was not only one of Canada’s best-performing technology stocks of 2018, but it has also emerged as one of the top revenue growers since the financial crisis. From 2009 onwards, the equity management software company has grown its annual revenue each year except one and revenues seem to have accelerated since the acquisition of CapShare Inc. in October 2017. Through CapShare, Solium has increased its stake in the cloud computing market, one of the fastest growing segments within technology.
Mediagrif Interactive Technologies (TSX: MDF)
- Market Cap: $143 million
- Annual Revenue Growth: 3.8% (March 2018)
- Free Cash Flow: $14 million
- Forward PE: 11.03
Mediagrif Interactive Technologies is the smallest company on our list, but one that offers plenty of upside in the fast-growing e-commerce space. The company has 500 employees throughout North America, where it serves at least half a dozen specialized industries ranging from consumer solutions to the automotive aftermarket and up to supply chain collaboration. Basically, the company builds various e-commerce networks that allow buyers and sellers to do business with one another. In its most recent quarter, Mediagrif posted better than expected revenue and reported per-share earnings that met analysts’ expectations.
Canada’s small-cap landscape can be difficult to navigate compared to its peers south of the border. These five tech stocks should give you an idea of the types of opportunities hidden deep within the TSX.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.