Globe & Mail Small caps to watch: This fintech stock has doubled this past year and analysts predict further record highs ahead
Canada’s S&P/TSX SmallCap Index is up 23 per cent over the past 12 months and remains a few points shy of its record high of 852.21 reached in April, 2022. The Russell 2000 in the U.S. is up about 30 per cent over the past year. It reached its all-time high of 2,449.86 on Nov. 27.
Small-cap spotlight
Here’s one small cap in Canada that investors may want to put on their radar screen.
Analysts have been raising their target prices for financial technology company VersaBank ahead of its fourth-quarter results expected to be released on Monday (Dec. 9). Investors appear enthused by the company’s recent acquisition that will bring its unique receivables funding solution to the massive U.S. market.
Shares of London, Ont.-based VersaBank, which provides business-to-business digital banking cybersecurity services and banking, are up 20 per cent over the past month and have more than doubled over the past year. The Canadian-listed shares are currently trading near their all-time high of $25.75, reached on Nov. 29. The average target price is $26.24 based on three analyst estimates surveyed by S&P Capital IQ.
KBW’s Tim Switzer raised his target to C$28 from C$22 this week, while Roth Capital Partners analyst Craig Irwin increased his target price to US$22 from US$18. Both analysts have a “buy” recommendation on the stock. Some analysts are waiting for the fourth-quarter results before revising their target price.
Roth recently hosted VersaBank chief executive David Taylor and president Tel Matrundola for investor meetings and Mr. Irwin said in a note that management is focused on launching its receivable purchase program (RPP) product in the U.S. It’s a funding solution for point-of-sale finance companies that VersaBank has offered in Canada for about 15 years. VersaBank says Canada is the largest point-of-sale financing market in the world.
VersaBank is expanding its receivables funding solution for point-of-sale finance companies in the U.S. following its US$14-million acquisition of Stearns Bank Holdingford N.A. Mr. Irwin said the move should help boost the company’s margins and fuel growth. He also noted that VersaBank has seen strong demand for Canada Mortgage and Housing Corporation-insured mortgages in Canada, which are zero-risk weighted and less risky.
VersaBank is expected to report earnings of 41 cents per share and revenue of $29.2-million for the quarter ended Oct 31, according to S&P Capital IQ estimates. The company reported revenue of $29.2-million and earnings of 47 cents per share for the same quarter last year. Analysts say earnings in the latest quarter are expected to be lower than the same period last year due to deal costs associated with the U.S. bank acquisition that closed in September.