Why I would make it big with these two small stocks

Small-cap companies, typically valued between $300 million and $2 billion, are known for offering greater growth potential than larger, more established companies. However, these companies are also more sensitive to market volatility, making them relatively riskier investments. Therefore, small-cap stocks are best suited for investors with a higher risk tolerance and a long-term investment horizon. With that in mind, let’s take a closer look at two promising small-cap stocks that I’m bullish on right now.

Extend

Extend (TSX:EXE), which offers care and services to Canadian seniors through several brand names, has achieved more than 75% of revenue this year. Solid quarterly performance and continued acquisitions have boosted investor confidence, driving the stock price higher. In the recently reported third quarter results, revenues excluding the impact of out-of-period LTC (long-term care) financing were $436.4 million, representing an increase of 22.1% from the prior-year quarter.

The acquisition of nine LTC homes, contributions from the Closing the Gap acquisition, growth in average daily volumes in the home care segment and higher LTC financing drove sales. However, the closure of two Class C LTC homes partially offset some of the gains.

Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and net income rose by 36.6% and 48%, respectively. Adjusted funds from operations per share increased 27.4% year over year to $0.349. The company ended the quarter with $165.7 million in cash and cash equivalents and access to an additional $154.0 million through its revolving credit facility, providing ample liquidity to support its growth initiatives.

Looking ahead, Canada’s aging population is expanding the addressable market for Extendicare’s services. The company remains focused on growth through a combination of organic growth and strategic acquisitions, which should strengthen its financial performance in the coming years. Furthermore, Extendicare offers a monthly dividend with a current yield of 2.3% and trades at an attractive forward twelve-month (NTM) price-to-earnings ratio of 17.6, making it an attractive investment opportunity.

5N Plus

Another small-cap stock that I think offers an attractive long-term investment opportunity is 5N Plus (TSX:VNP), a company engaged in the development, manufacturing and marketing of specialty semiconductors and performance materials. Backed by its impressive quarterly performance and high growth prospects, the company has delivered a return of approximately 180% this year.

In its recently reported third quarter results, 5N Plus posted revenue of $104.9 million, up 33% year over year and the highest quarterly revenue in a decade. Robust sales growth in the specialty semiconductor segment, supported by rising demand from the terrestrial renewable energy and space solar markets, as well as higher prices for bismuth-based products within the performance materials division, drove sales. Meanwhile, adjusted EBITDA and net income rose 86% and 184%, respectively, thanks to revenue growth and a 580 basis point improvement in gross margin. Buoyed by its solid financial performance, the company has reduced its net debt to $63.3 million from $100.1 million at the start of the year, bringing its net debt to EBITDA ratio down to a healthy 0.74.

Meanwhile, the growing terrestrial renewable energy sector and space solar market have created long-term growth potential for 5N Plus. Given its global presence, strong sourcing capabilities and high-quality product portfolio, the company continues to strengthen its position in this changing geopolitical landscape. Despite its solid financial performance and healthier growth prospects, the company’s valuation appears reasonable, with an NTM price-to-earnings ratio of 24.8 making it an excellent buy.