What are we looking for?
Profitable Canadian small-cap companies with high margins, strong free cash flow and inexpensive valuations.
The screen
Small-cap stocks have rallied in 2026. The S&P/TSX SmallCap Index has returned 19 per cent year-to-date and roughly 57 per cent over the past 12 months, far outperforming the S&P/TSX Composite. Smaller companies are often underfollowed by analysts, creating the potential for mispricings that diligent investors can exploit before the broader market takes notice.
Using FactSet’s screening tool, I identified profitable and cash generating Canadian small-cap companies by applying the following criteria:
- included in the S&P/TSX SmallCap Index
- market capitalization greater than $250-million
- EBITDA (earnings before interest, taxes, depreciation and amortization) margin greater than 30 per cent
- net income margin greater than 10 per cent
- free cash flow yield greater than 7 per cent
The seven companies that passed were ranked by a multifactor composite of price-to-earnings, enterprise value to EBITDA, price to free cash flow, net income margin and EBITDA margin.
What we found
Four of the seven are precious metals producers, reflecting a historic run in gold and silver that has inflated margins and cash flow across the sector. Gold recently traded near US$4,200 an ounce, up about US$850 from a year earlier, while silver almost doubled over the same period to about US$67 an ounce, lifted by central bank buying and safe-haven demand tied to the conflict in Iran.
Alaris Equity Partners Income Trust, a Calgary-based firm that invests in private companies in exchange for a steady stream of distributions, ranked first, trading at 8.6 times earnings. Given Alaris’s unique investment-entity structure, EBITDA can exceed reported revenue and thus be over 100 per cent for certain time periods. Alaris pays a 6.3-per-cent distribution yield, and in April it raised its quarterly distribution 3 per cent to 38 cents a unit, supported by a payout ratio of 51.9 per cent reported in the first quarter ended March 31. That’s well below its target range of 65 to 70 per cent, leaving room for further upside. Revenue for the quarter rose 2.7 per cent year-over-year, while partner revenues climbed to $48.6-million, exceeding guidance by 2 per cent and reflecting capital deployed into new and follow-on investments.
Andean Precious Metals Corp., a gold and silver producer with operations in Bolivia and California, ranked second, trading at 2.7 times enterprise value to EBITDA and five times earnings, the lowest valuations in the group. Its shares have more than doubled over the past year, returning 106.8 per cent. The gain reflects Andean’s production mix, as 57 per cent of its revenue in the year ended Dec. 31, 2025 came from silver, the metal that rose most, and 43 per cent from gold. Higher realized prices and increased production helped lift revenue in the first quarter ended March 31 by 163 per cent year-over-year to US$163.1-million, while free cash flow rose to US$39.6-million. If gold and silver prices climb further, Andean’s high-margin production mix could translate into additional earnings upside.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA Candidate at the University of California, Berkeley, Haas School of Business.