Insights into the growing attractiveness of Canadian small-cap stocks, fueled by strong valuations, improving earnings growth, and a weaker Canadian dollar. Examples of companies benefiting from this trend are highlighted, alongside the outlook for the sector.
Canadian small-cap stocks are showing signs of attractiveness to investors, with several market professionals highlighting their undervalued potential. This renewed interest comes despite challenges such as slower earnings growth. Analysts point to several factors driving this positive outlook.
Firstly, valuations in the small-cap space are considered attractive, with a significant portion of stocks in the S&P/TSX Smallcap Index trading at price-to-earnings ratios below the TSX average for 2025. Secondly, earnings-per-share growth for these companies has shown a substantial improvement, indicating a strengthening financial performance.The Canadian dollar's weakness is also seen as a potential benefit for smaller companies with US-based revenue streams. Specific examples cited include AirBoss, a manufacturer of rubber-based products, which secured a lucrative three-year contract worth up to US$82.3-million. Another example is , which reported a 16-percent increase in revenue for its first quarter, exceeding expectations. Even in the face of macroeconomic challenges, companies like Exco Technologies, a manufacturer of tooling and equipment, remain optimistic about their medium-term outlook. The trend extends to the mining sector, with companies like reporting record revenues and increased gold equivalent ounces. The positive sentiment is further fueled by increased ownership stakes from prominent investors like Frank Giustra, who recently boosted his holding in a mining company to 15.1 percent
SMALL-CAP STOCKS CANADIAN STOCK MARKET VALUATIONS EARNINGS GROWTH INVESTOR INTEREST MINING SECTOR ECONOMIC OUTLOOK
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