Which Canadian penny stocks would be a smart buy?

Highlights 

  • Investors aiming for short-term gains often look for penny stocks as these are low-priced.
  • Generally, penny stocks are expected to deliver normal returns as these companies have limited capital to capitalize on the market opportunities.
  • Some penny stocks may exhibit robust operational and growth capabilities, which can help them in business expansion and overcome capital constraints in future.

Investors aiming for short-term gains often look for penny stocks as these are low-priced. Generally, penny stocks are expected to deliver normal returns as these companies have limited capital to capitalize on the market opportunities.

However, some penny stocks may exhibit robust operational and growth capabilities, which can help them in business expansion and overcome capital constraints in future.

Also read: Which Canadian bank stocks to buy as dividends go up?

Keeping this in mind, let us glance two Canadian penny stocks.

1.    Chesswood Group Limited (TSX: CHW)

Chesswood Group Limited is a Toronto-based company that provides equipment financing to small and medium-sized businesses.

In October, the company entered an acquisition agreement with Rifco Inc, an auto finance provider, to expand its financial footprints.

The commercial equipment financer generated free cash flow of C$ 10.2 million in the third quarter of fiscal 2021, up by 22 per cent from Q2 FY2021.

Its net income rose by C$ 8.5 million year-over-year (YoY) in Q3 FY2021 when excluding the impact of COVID-19 provisions. Its fully diluted earnings per share grew by 12.5 per cent quarter-over-quarter (QoQ) to C$ 0.45 apiece in the latest quarter.

Chesswood also announced a monthly dividend of C$ 0.03 apiece, payable on December 15.

Chesswood Group Limited (TSX:CHW)’s financial performance in Q3 FY2021

Image source: © 2021 Kalkine Media Inc 

Data source: Chesswood Group Limited

The financial stock jumped by more than 17 per cent in the past three months and expanded by more than 63 per cent in the last 12 months. It clocked a 52-week high of C$ 14.5 on November 22, 2021.

CHW stock closed at C$ 13.80 apiece on Thursday, December 2, up by more than two per cent.

The financial service company posted a price-to-earnings ratio of 10.50 and a return on equity (ROE) of 14.50 per cent.

2.    Thunderbird Entertainment Group Inc (TSXV: TBRD)

Thunderbird Entertainment Group Inc is a diversified media firm with headquarter in Vancouver, British Columbia.

Thunderbird saw a revenue growth of 77 per cent YoY to C$ 35.1 million in the first quarter of fiscal 2022, which was primarily due to increase in production service projects. The delivery of  the live-action series Strays for CBC also resulted in revenue surge.

Its adjusted EBITDA rose by 31 per cent YoY to C$ 6.3 million in Q1 FY2022. Its free cash flow expanded notably by 183  per cent YoY to C$ 3.4 million in the latest quarter.

Stocks of Thunderbird swelled by nearly 55 per cent on a year-to-date (YTD) basis and zoomed by more than 81 per cent in the past 12 months.

After hitting a day high of C$ 5.02, the media stock closed at C$ 4.95 apiece on December 2, down by one per cent.

It held a debt-to-equity ratio of 0.97 and an ROE of 10.20 per cent.

Also read: How the omicron variant can impact Canadian stock markets

Bottom line

Penny-cap companies are generally young players in the market, which makes them comparatively more sensitive to market hiccups.

However, business expansion and return capabilities of such stocks cannot always be undermined as these stock can also grow to become important player in the market.

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