Quarter-to-date, small cap stocks have trailed the broader index, but only slightly.
The S&P/TSX SmallCap Index has rallied 4 per cent compared to a 5.4-per-cent price return for the S&P/TSX Composite Index. Major detractors to the performance of the TSX SmallCap Index are the energy and utilities sectors with losses of 3.5 per cent and 9.3 per cent, respectively.
In addition to underperformance, this earnings season has been volatile for small caps with many stocks seeing significant revisions to their average target prices. Nearly 90 per cent of companies in the S&P/TSX SmallCap Index have reported their quarterly earnings results and roughly 15 per cent of companies in the Index have seen double-digit revisions to their average target prices. These stocks are listed below.
Small cap stocks with the largest increases to their average target prices include: Stelco Holdings Inc. (STLC-T), GoldMining Inc. (GOLD-T), NFI Group Inc. (NFI-T), Algoma Steel Group Inc. (ASTL-T), CES Energy Solutions Corp. (CEU-T), VitalHub Corp. (VHI-T), Crew Energy Inc. (CR-T), Real Matters Inc. (REAL-T), Wesdome Gold Mines Ltd. (WDO-T), Sleep Country Canada Holdings Inc. (ZZZ-T), Profound Medical Corp. (PRN-T), ECN Capital Corp. (ECN-T), GoGold Resources Inc (GGD-T), Chorus Aviation Inc. (CHR-T), European Residential REIT (ERE-U-T), Computer Modelling Group Ltd. (CMG-T) and Tilray Brands Inc. (TLRY-T). During the quarter, both Stelco and Sleep Country received takeover offers at premiums to where the share price was trading prior to the acquisition announcements, which resulted in increases to their target prices. The remaining companies listed saw their average target prices rise by between 10 per cent and 31 per cent.
Stocks with large negative revisions to their average target prices include: Westport Fuel Systems Inc. (WPRT-T), Mattr Corp. (MATR-T), Canada Goose Holdings Inc. (GOOS-T), Global Atomic Corp. (GLO-T), Journey Energy Inc. (JOY-T), Wajax Corp. (WJX-T), Pet Valu Holdings Ltd. (PET-T), AutoCanada Inc. (ACQ-T), Superior Plus Corp. (SPB-T), Pollard Banknote Ltd. (PBL-T), Uranium Royaly Corp. (URC-T), Ballard Power Systems Inc. (BLDP-T), Lithium Americas Argentina Corp. (LAAC-T), Lithium Americas Corp. (LAC-T), Victoria Gold Corp. (VGCX-T), Exro Technologies Inc. (EXRO-T), Canacol Energy Ltd. (CNE-T), Lion Electric Co. (LEV-T) and Nano One Materials Corp. (NANO-T). These 19 companies saw their average target prices decline by between 10 and 42 per cent.
Now, here’s a look at analysts’ target prices, recommendations, forecast returns and yields for all securities in the S&P/TSX SmallCap Index grouped by sector and ranked according to their expected price returns (excluding dividend and distribution income). The posted target price for each security is an average of all available target prices from analysts. A target price typically reflects an expected share or unit price 12 months from now based on an analyst’s financial modelling, such as a discounted cash flow or sum-of-the-parts model. For the yield provided, Bloomberg calculates this figure by annualizing the most recent announced dividend or distribution value.
It’s important to note that high target prices, which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low. Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.