As we enter the fourth quarter, both the S&P 500 and Canadian TSX have experienced strong growth, though recent volatility has been fueled by uncertainties surrounding the U.S. labor market, geopolitical tensions in the Middle East, and upcoming political events. Despite these challenges, solid economic fundamentals in Canada present opportunities for discerning investors to explore small-cap stocks that might be trading below their intrinsic value.
Top 10 Undervalued Small Caps With Insider Buying In Canada
Overview: Exchange Income operates in the manufacturing and aerospace & aviation sectors, with a focus on providing diversified services across these industries, and has a market capitalization of CA$2.43 billion.
Operations: Exchange Income generates revenue primarily from its Aerospace & Aviation and Manufacturing segments, with the former contributing CA$1.60 billion and the latter CA$1.01 billion. The company's gross profit margin has shown a trend of fluctuation, reaching 34.72% as of October 2024. Operating expenses have consistently impacted profitability, with recent figures at CA$614.63 million in June 2024 and non-operating expenses at CA$174.73 million during the same period.
PE: 21.9x
Exchange Income, a smaller Canadian company, has shown insider confidence with share purchases over the past year. Despite higher risk funding from external borrowing and interest payments not being well covered by earnings, its earnings are forecasted to grow 25.94% annually. The company reported sales of C$426 million in Q2 2024, up from C$372 million a year ago. Its Atik Mason Pilot Pathway supports Indigenous students' aviation careers, reflecting a commitment to community engagement and future growth potential.
Overview: Pason Systems is a company that provides specialized data management systems for drilling operations, with a market cap of CA$1.06 billion.
Operations: The company generates revenue primarily from North America Drilling, International Drilling, and Solar and Energy Storage segments. Over recent periods, the gross profit margin has shown variability but reached 65.84% in June 2023 before declining to 59.51% by October 2024. Key costs include COGS and operating expenses, with R&D consistently being a notable expenditure within operating costs.
PE: 9.9x
Pason Systems, a Canadian company in the oilfield services sector, recently reported CAD 95.86 million in second-quarter sales, up from CAD 84.69 million the previous year, but net income dropped to CAD 10.89 million from CAD 25.47 million due to large one-off items affecting earnings quality. They also repurchased 151,900 shares for CAD 2.7 million between April and June 2024, signaling potential insider confidence despite forecasts of declining earnings over the next three years at an average rate of 1.5%.
Overview: Vermilion Energy is engaged in the exploration and production of oil and gas, with operations primarily focused on these sectors, and has a market capitalization of approximately CA$3.5 billion.
Operations: The company generates revenue primarily from its oil and gas exploration and production activities, with recent reported revenue of CA$1.81 billion. The gross profit margin has shown variability, reaching as high as 82.55% but recently recorded at 65.72%. Operating expenses have been a significant component of costs, impacting net income margins which have fluctuated widely over time, including periods of negative margins.
PE: -2.7x
Vermilion Energy, a Canadian energy company, is navigating challenging times with recent earnings showing a net loss of C$82.43 million for Q2 2024. Despite this, they are making strategic moves to enhance future prospects. In September 2024, Vermilion announced successful testing of their first deep gas well in Germany and commenced drilling additional wells to capitalize on promising results. The company has repurchased shares worth C$112 million since July 2023, reflecting insider confidence in its long-term potential amidst volatile market conditions.
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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:EIF TSX:PSI and TSX:VET.
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