Hidden gems in the Canadian industrial landscape

It is common knowledge that the TSX is dominated by energy and financial companies – but that dominance comes at the expense of other sectors, especially the industrial sector. When people talk about Canadian industrial stocks, their thoughts often go straight to the two big railroads or perhaps a waste management company or two.

But if you dig into the mid-cap space, you’ll find some quiet compounders worth checking out. An example? The modest Element Fleet Management Corp (TSX:EFN). This is why I believe it is a true hidden gem in the Canadian industrial sector.

What is EFN?

EFN is a global fleet management company engaged in the acquisition, financing, program management and remarketing of vehicles in Canada, the US, Mexico, Australia and New Zealand. The model combines service revenue, financing revenue and remarketing of used vehicles, creating multiple revenue streams.

EFN stands out in the TSX industrial landscape because it doesn’t fit the typical image of “railway or equipment distributor.” Instead, it operates as a professional fleet management services company – a rarer animal on the Canadian stock exchange. It will have more than 1.5 million vehicles under management as of the third quarter of 2025, up 2% year-on-year.

The company is less exposed to commodity cycles and more driven by recurring contracts and fleet usage, giving it a more stable growth profile. Combining this capital-efficient model with global scale places EFN in a category that is relatively underpopulated on the TSX – which is why I believe it qualifies as a hidden gem.

Is EFN a good buy?

In the third quarter of 2025, the company reported net sales of $306.4 million, up 10% year over year, and adjusted earnings per share of $0.33, up 14%. The company also generated US$0.42 in adjusted free cash flow per share, up 17% from a year earlier.

On the balance sheet side, the company is indebted – its operations are capital intensive – but it has solid credit ratings and a capital-light services component is growing.

Valuation metrics show the company posting an earnings growth rate of about 16% and a return on equity of about 15.4%. All in all, for a company that sounds “boring”, EFN seems to deliver quality business fundamentals at a fair price.

The silly takeaway

Even if you decide not to buy EFN outright, the lesson here is valuable: look for mid-cap companies in less glamorous sectors with disciplined management, recurring revenue models and global scale. Often the biggest opportunity lies not in the obvious names, but in the quietly executing compounders who fly under the radar.