Small-cap stocks’ higher expected returns versus the market are inextricably tied to identifying companies delivering profitable growth with minimal or negative share-price recognition.
In this article, we’ll explain how to go about sourcing these companies and evaluating them before a potential investment. First, let’s get a little terminology housekeeping out of the way.
What are small-cap stocks?
As they pertain to the Canadian market, small-cap stocks are anywhere from a few hundred million to about C$2 billion in market capitalization, depending on your source, and are commonly characterized by heightened volatility because of unprofitability, lack of liquidity and/or lack of market awareness. These factors make dislocations between stock price and business potential a common occurrence, offering investors ample opportunities to pick up attractive assets at a discount….
