4 days ago
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3 of the TSX Index's smallest and most profitable stocks
The comfort and lower volatility from concentrating your portfolio in large-cap stocks, often tied to recognizable brands will, over the long term, come at the cost of lower returns versus diversifying into small-cap names. According to Provisus Wealth Management, this disparity amounts to 4.1 per cent annually from 1957 to 2023.
These smaller-cap companies offer a greater potential for market-beating returns compared to their larger counterparts thanks to a combination of minimal analyst coverage, market misperception, longer growth runways, as well as unproven and therefore higher-risk businesses. These conditions place a premium on investors able to get their hands dirty and comb through financials to unearth companies best positioned to deliver shareholder value.
The question of the hour then becomes, how should an active investor approach the harvesting of small-caps' differentiated returns so as to maximize the potential outcome while minimizing risk? How I picked 3 of the TSX's smallest and most profitable stocks
To put our thesis in play, I got my hands on The Globe and Mail's dataset on the TSX Index, which represents about three quarters of the TSX's market capitalization and sets minimums on liquidity and trading volume that will offer some foundational stability to our stock picks.
I then used the list's functionality to order the companies from smallest to largest market cap, maximizing for small-caps' higher relative historical return, and proceeded to work my way through the income statements of the smallest and most profitable companies – measured by earnings per share (EPS) – over the past year.
Limiting myself to the first quartile of the list, or approximately 50 names, I kept my eyes peeled for patterns of profitable growth, favoring net income and multi-year track records, increasing the probability of management skill over luck and a potential investor's conviction in the company's future success. Here are the top-three stocks I ended up with: Trisura Group – EPS of C$2.3 year-over-year. Killam Apartment REIT – EPS of C$5.36 year-over-year. GoEasy – EPS of C$15.22 year-over-year. 3 of the TSX's smallest and most profitable stocks 1. Trisura Group
Our first profitable stock pick in the TSX Index is Trisura Group, market cap C$1.88 billion, a specialty insurance company in Canada and the United States operating in the surety, warranty, corporate insurance, program and fronting markets.
The company's Canadian operations began in 2006, after being spun off from Brookfield Asset Management (TSX:BAM), and have built a 17-year underwriting track record, while its US business has been active in fronting since 2018 and is licensed to do business in admitted markets in 49 states and in non-admitted markets in all 50 states.
Trisura grew revenue by over 15 times from C$190 million in 2020 to C$2.87 billion in 2024, while growing net income by 3.66 times from C$32.44 million to C$118.92 million, respectively. This prospective trend continued into Q1 2025 with revenue of C$622 million, net income of C$28.99 million and a low 10.7-per-cent debt-to-capital ratio that president and chief executive officer David Clare sees as key to the company's flexibility and growth potential.
Steered by a management team averaging over 30 years of industry experience, the company is well-positioned to deliver on its ambitious growth plans – as laid out in its March 2025 investor presentation – which include surpassing C$1 billion in book value by 2027, up from a record C$820 million in Q1 2025.
Trisura Group (TSX:TSU) last traded at C$39.65. The stock has given back 4.16 per cent year-over-year but remains up by 199.25 per cent since 2020. 2. Killam Apartment REIT
Our next profitable small-cap is Killam Apartment, market cap C$2.35 billion, one of the largest residential real estate investment trusts (REIT) in Canada, owning, developing and managing about C$5.5 billion in apartments and manufactured home communities across Ontario, Alberta, Atlantic Canada and British Columbia. The company's value creation strategy focuses on increasing earnings from existing operations, offering high-quality properties in core markets, geographical diversification into newer properties and the disposition of non-core assets.
While net income bounced around a fair bit during the COVID years, Killam has posted three years of consecutive growth under the metric from C$122.52 million in 2022 to C$667.84 million in 2024. The company has kept this momentum going with an additional C$93.02 million in revenue and C$101.91 million in net income in Q1 2025 supported by a high same property occupancy levels of 97.5 per cent, a record low debt-to-total-assets ratio of 39.9 per cent and a year-over-year increase in funds from operations of 7.7 per cent to C$0.28.
Protected by internally generated cash flow, a defensive portfolio with only 17 per cent of properties above C$2,000 per month in rent, as well as management's sound capital allocation – as evidenced by consistently falling debt-to-normalized EBITDA from 11.33x in 2021 to 9.66x in Q1 2025 – Killam is a fortress of an option when it comes to capitalizing on an essential market, which has shown resilience in the face of irrational pessimism stemming from more restrictive federal immigration policies.
Killam stock (TSX: last traded at C$19.47. The stock has added 13.26 per cent year-over-year, 14.12 per cent since 2020 and 89.21 per cent since 2015. 3. GoEasy
Last in our trio of profitable stocks on the TSX Index is GoEasy, market cap C$2.41 billion, which specializes in non-prime leasing and lending under the easyhome, easyfinancial and LendCare brands. The company operates over 400 locations across Canada, boasting about 11,000 merchant partners, offering a product suite that includes unsecured and secured instalment loans, merchant financing and lease-to-own merchandise in the retail, powersports, automotive, home improvement and healthcare spaces. Since inception, GoEasy has served over 1.5 million Canadians and originated over C$16.6 billion in loans.
The company has compounded revenue at a staggering 28 per cent per year since 2014, including tripling the figure from C$652.92 million in 2020 to C$1.52 billion in 2024, with a healthy C$391.8 million collected in Q1 2025.
In terms of profitability, the company has compounded net income at 30.4 per cent since 2014, improving its performance over the past three years from C$140.16 million in 2022, to C$247.90 million in 2023, to C$283.11 million in 2024, with a respectable C$39.40 million generated in Q1 2025.
With management expecting higher revenue and operating margins through 2027 and the need for alternative credit at an all-time-high, with Canadian consumer debt hitting a new record in Q4 2024, GoEasy is a top-shelf consideration to complement your existing financials exposure.
GoEasy stock (TSX:GSY) last traded at C$149.79. The stock has given back 19.61 per cent year-over-year but remains up by 163.85 per cent since 2020. Should you invest in Trisura, Killam or GoEasy today?
The question of whether or not the stocks we've discussed today belong in your portfolio hinges on your financial goals, risk tolerance and time horizon, or the number of years you have to invest before needing to draw on your funds.
It also depends on your ability to conduct due diligence on a prospective company and come to a high-conviction decision, allowing you to remain invested over the long term despite volatility that may suggest reasons for panic.
Take care to paint a clear picture of your personal financial circumstances and stay up to date on your favorite public companies to best tailor your time in the markets.
Join the discussion: Find out what everybody's saying about these profitable small-cap stocks on the Trisura Group Ltd., Killam Apartment REIT and GoEasy Ltd. Bullboards and check out the rest of Stockhouse's stock forums and message boards.
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