In this article, we are going to discuss the 8 Best Small-Cap Stocks Ready to Explode According to Analysts. We recently published an article on digital payment stocks. Check that out — 10 Best Digital Payment Stocks to Buy Now.
Small-cap stocks are companies that have market caps falling between $250 million and $2 billion. We’ve often seen these smaller enterprises outshined by their large-cap counterparts, also because stocks like Google, Apple, Amazon etc. are known for their power to move entire markets. But it doesn’t mean that these small-cap stocks cannot present some golden opportunities for investment.
Small-cap stocks started gaining momentum during the last quarter of 2023, driven primarily by the AI-led rally that pushed the entire stock market high, thus putting away any immediate worries of an upcoming recession. In the last six months, the Russell 2000 Index has witnessed an increase of 16.86%, going nearly neck and neck with the large-cap-focused Russell 1000, which has also jumped by 16.87%. The long-term prospects of these smaller companies don’t look bleak either. In the last ten years, the S&P Small Cap 600 Quality Index had annualized gains of 9.42%, not far behind the 10.92% annualized gain by the S&P 500 Index during the same period.
According to Julius Baer, a private banking company based in Zurich, small-cap stocks have proven to, in fact, even outperform their larger-cap counterparts over very long periods. The report mentions that a dollar invested in US large-caps in 1926 grew in value to $5,767 by the end of 2018. Meanwhile, a single dollar invested in small-caps instead would have been worth a whopping $38,842 – almost seven times more.
However, what really makes these stocks attractive to investors is their potential for high returns. We will much more often see companies doubling their market capitalization from $1 billion to $2 billion, than let’s say from $1 trillion to $2 trillion. Small-caps tend to be fast-growing companies that can take more chances and respond to events and trends more flexibly than larger companies. Moreover, a recent analysis by MorningStar has revealed that small-caps look cheaper now relative to the broad market than at any time in the last 20 years.
But, of course, higher returns come with higher risks. Small-caps are highly vulnerable to macroeconomic factors and are thus more prone to market fluctuations, simply because they don’t possess the same financial power as larger corporations, making it hard for them to survive unexpected emergencies. Additionally, these companies often have fewer outstanding shares, can’t borrow money as easily as bigger companies, and are more likely to have negative cash flows, leading to them paying lower or no dividends. They are also usually covered by fewer analysts and thus come with limited transparency and data for individual investors.
According to Marcio Silveira, a CFP, former equity analyst, and owner of Silvergreen Sustainable Investments:
“Since the 2010s, we’ve had some changes in how the economy works. All the top companies are tech companies now, and small-caps are underperforming because they can’t compete with these mega winner-take-all companies. You can find great opportunities in individual small-cap stocks, but you need to do a lot of fundamental analysis to find the hidden gems”
In April 2024, there were over 1,600 small-cap stocks trading on U.S. stock exchanges, so to make things easier for our readers and help them diversify their portfolios, we have picked out the Small-Cap Stocks with the Highest Upside Potential According to Analysts.
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Methodology:
To collect data for this article, we used a stock screener to shortlist prominent stocks that had a current market cap between $250 million and $2 billion. Then, we used TipRanks to further pick out stocks with an upside potential of over 50%, based on analysts’ price targets as of May 21st, 2024, and ranked them accordingly. Here are the Best Small-Cap Stocks to Buy According to Analysts.
8. Upwork Inc. (NASDAQ:UPWK)
Upside Potential as of May 21st: 59.03%
Market Cap: $1.53 billion
Upwork Inc. (NASDAQ:UPWK) describes itself as the world’s work marketplace that connects businesses with independent talent from across the globe. The San Francisco-based platform boasts a talent community encompassing more than 10,000 skills in categories including website & app development, creative & design, customer support, finance & accounting, consulting, and operations.
The company reported a revenue of $689.14 million in 2023, an increase of 11.5% from the $618.32 million reported the previous year. Meanwhile, net income was $46.9 million in 2023, compared to a net loss of $89.9 million in 2022. Upwork’s active clients also grew 5% YoY to 851,000 at the end of last year – an all-time high. Wall Street analysts have maintained a Strong Buy rating on the stock, with an upside potential of 59.03%, making it one of the Best Small-Cap Stocks to Invest in.
At the end of Q4 2023, stocks of Upwork Inc. (NASDAQ:UPWK) were held by 35 hedge funds in the Insider Monkey database, with Ancient Art (Teton Capital) holding the largest stake of 5,224,436 shares, valued at $64.05 million.
7. EZCORP, Inc. (NASDAQ:EZPW)
Upside Potential as of May 21st: 69.83%
Market Cap: $549.97 million
Formed with 16 pawn stores in 1989, EZCORP, Inc. (NASDAQ:EZPW) has grown into a leading provider of pawn loans in the United States and Latin America. The Texas-based company reported a revenue of $285.6 million in its second quarter ended March 31st 2024, up 10.5% from the same quarter last year. Meanwhile, it also had a net profit of $21.5 million, up from a net loss of $6.8 million last year. During the second quarter, EZCORP, Inc. (NASDAQ:EZPW) opened nine de novo stores in Latin America and also acquired six stores in the U.S. The company now has a total of 1,246 stores, with over 7,800 team members.
Among the 20 hedge funds that held stocks of EZPW at the end of Q4 2023, Fort Baker Capital Management boasted the largest stake of almost 20.54 million shares, valued at around $20.49 million.
EZPW is currently trading with a trailing 12-month P/E ratio of 8.17, putting it among the Top Undervalued Small-Cap Stocks to Buy.
6. Getty Images Holdings, Inc. (NYSE:GETY)
Upside Potential as of May 21st: 77.09%
Market Cap: $1.51 billion
Next up on our list of Small Company Stocks that You Should Own Now is Getty Images Holdings, Inc. (NYSE:GETY), a preeminent global visual content creator and marketplace that offers a full range of content solutions to meet the needs of any customer around the globe, no matter their size.
The Seattle-based company reported a revenue of $222.3 million in Q1 2024, a decrease of 5.7% YoY on both a reported and currency neutral basis. However, the company boasted a net income of $13.6 million, up 325% from the $3.2 million reported in the same quarter last year. The company also grew its annual subscribers by 79% to 262,000. According to analysts, GETY has an average price target of $6.57, representing an upside potential of 77.09%. The analysts have maintained a Strong Buy position on the stock.
Stocks of Getty Images Holdings, Inc. (NYSE:GETY) were held by 2 hedge funds at the end of Q4 2023, with a collective stake value of $1.155 million.
5. LanzaTech Global, Inc. (NASDAQ:LNZA)
Upside Potential as of May 21st: 83.14%
Market Cap: $504.22 million
LanzaTech Global, Inc. (NASDAQ:LNZA) is a carbon recycling company that turns waste carbon into sustainable raw materials for everyday products.
In Q1 2024, the Illinois-based company reported a revenue of $10.2 million, an increase of 6% compared to $9.6 million in the first quarter of last year. The increase in revenue reflects growth in the company’s CarbonSmart and Joint Development Agreements & Contract Research businesses. Meanwhile, the company’s quarterly net loss also came down to $25.5 million, compared to a net loss of $63.3 million in the prior year period. On the 9th of May, LanzaTech Global, Inc. (NASDAQ:LNZA) filed a prospectus related to a proposed mixed-shelf offering of up to $300 million.
Shares of LNZA were held by 7 hedge funds at the end of Q4 2023 in the Insider Monkey database, with a combined stake value of $1.074 million.
LanzaTech Global, Inc. (NASDAQ:LNZA) is included among the Top 5 Small-Cap Stocks Ready to Explode in 2024.