Canadian small-cap stocks can be among the most high-reward, high-risk opportunities for growth-oriented investors — and as we head into 2026, a couple of names stand out because of clear upcoming catalysts and business transformation potential. These companies are markedly different from large, established blue chips: their valuations are smaller, their businesses more agile, and the potential upside can be significant if their strategic shifts gain traction.

1. Propel Holdings — From Fintech to Licensed Banking
Propel Holdings is a fintech firm with an expanding footprint in alternative lending. In late 2025, it secured regulatory approval to launch a fully licensed bank — Propel Bank — which is expected to become operational in early 2026. This shift could transform Propel from a niche credit services provider into a broader financial institution capable of offering traditional banking products, accessing new markets (including the U.S.), and potentially widening profit margins. The company posted strong revenue growth in its recent quarter and has raised its dividend consistently, even while its share price lagged broader markets. For long-term investors willing to tolerate volatility, Propel’s new bank status and strategic partnerships could be meaningful growth drivers next year.

2. Hammond Power Solutions — Electrification Demand Surge
Hammond Power Solutions is an industrial small cap that has benefited from rising demand for electrical transformers and related equipment, driven by grid modernization and data-centre buildouts linked to broader electrification trends. The company has built a new manufacturing facility that should improve margin profiles and meet rising order backlogs, a significant positive for 2026 revenue and earnings prospects. With substantial backlog growth and strong demand tied to AI infrastructure and energy transitions, Hammond’s business illustrates how certain industrial small caps can thrive when macro trends align with company-specific capacity expansion.

Also Read: Best long term Canadian stocks

Investor Considerations
Small-cap stocks generally carry higher volatility and business risk than large-cap counterparts. Their earnings can be less predictable, liquidity may be lower, and single earnings miss or macro shock can lead to disproportionate price swings. That said, companies with distinct growth catalysts — such as new business models or capacity expansion — offer a compelling risk/reward profile if you have a long investment horizon and tolerance for ups and downs.

Also Read: Long term investing in Canada

Summary
For risk-tolerant investors looking to add early-stage growth plays to their portfolios in 2026: Propel Holdings may offer upside as it transitions into banking, and Hammond Power Solutions could benefit from continued electrification and industrial demand. Both illustrate how select Canadian small caps — though volatile — can outperform when strategic catalysts and broader trends align.