In this week’s filter created for The Globe and Mail, we screened for Canadian-listed small-cap stocks showing solid fundamentals.
Today we highlight Canadian small-cap growth companies that have sound fundamentals.
We screened the Canadian stock universe by focusing on the following criteria:
- Market capitalization between $200-million and $1-billion;
- A current economic performance index (EPI) greater than one – this ratio is the return on capital to cost of capital. It gives shareholders an idea of how much return the company is generating on each dollar spent;
- Positive 12-month sales growth;
- A PEG, or price-earnings to growth, ratio between zero and two. This ratio compares the current price-to-earnings ratio with the average five-year earnings per share growth. For a stock to be fairly valued, the PEG ratio is one. For the stock to be undervalued, the PEG ratio would be lower than one, showing that the stock price does not fully reflect the earnings growth capability of the company.
Magellan Aerospace Corp., an aerospace systems and components manufacturer based in Mississauga, is the largest company on our list by market cap. The PEG ratio is 0.8, which suggests that the earnings growth was stronger than what is reflected by the stock price – in other words, an attractive valuation. On the other hand, the company’s operations are efficient, as indicated by the EPI, which shows return on capital at 1.5 times the cost of capital.
TerraVest Industries Inc., an Alberta-based manufacturer whose products include fuel-containment vessels and wellhead processing equipment for the oil and gas industry, is one of the smallest companies on our list by market cap. It has a PEG ratio is 0.6, putting the stock at an attractive price point. In addition, the sales grew strongly, at 34.6 per cent, over the past 12 months.
This article is written by Noor Hussain, Analyst at Inovestor Inc.
Investors are advised to do further research before investing in any of the companies that are listed below.