We recently compiled a list of the Top 10 Small-Cap Stocks with Highest Upside Potential. In this article, we are going to take a look at where Sunnova Energy International, Inc. (NYSE:NOVA) stands against the other small-cap stocks.
Small-cap stocks are companies with a market capitalization of somewhere between $250 million and $2 billion. They are usually the new and the world’s up-and-coming companies.
Most giant companies start as small-cap, but by continuously developing and growing their earnings, their share price increases making them large or mega-cap companies, and along the way smart investors that took the risk with proper research and analysis reap the profits.
As mentioned in one of our previous articles i.e. 8 best small-cap stocks according to analysts, a report from Julius Baer, a private banking company based in Zurich, explains how small-cap stocks have proved to outperform over very long periods. The report states that a single dollar invested in the US large caps in 1926 grew in value to $5,767 by the end of 2018. But, a dollar invested in small caps would have been worth almost seven times more at $38,842.
As with anything else, investing in small-cap stocks comes with its benefits and drawbacks. Small-cap companies have a high potential for growth and their shares aren’t necessarily too expensive, investors can make a lot of profit with the rapid growth in share prices of these up-and-coming companies. Moreover, according to a recent analysis posted by MorningStar, Small caps look cheaper now relative to the broad market than at any time in the last 20 years. But these high returns often come with high risk, small-cap stocks are vulnerable to economic fluctuations because they don’t possess the financial power and stability as the large-cap companies.
A smart investor maintains a portfolio of several small-cap stocks with rapid growth potential and some large-cap stocks for their stability against market fluctuations. Small-cap stocks are gaining popularity among Wall Street analysts in 2024 especially in the healthcare sector because of their new therapeutic innovation and high-returns potential.
J.P. Morgan Asset Management’s Long-Term Capital Market Assumptions (LTCMAs) expect the US large-cap stocks to generate a +7.0% annualized return over the next 10 to 15 years compared to the +7.6% annualized returns expected for the mid-cap and small-cap. The private bank believes that building a portfolio of attractively valued, high-quality small-cap stocks can generate potent long-term returns while mitigating some risks.
According to Thomas Lee, the head of research and the co-founder of Fundstrat Global Advisors, there is a 50% upside for small-cap stocks in 2024. Lee stated, “You may be surprised, but small-caps have a faster revenue growth. Lee also highlighted the small-caps’ earnings growth potential, projecting a 19% growth in EPS, outpacing the S&P 500’s 12% projected YoY EPS growth for 2024.
Moreover, the Fundstrat’s CEO pointed out that the institutional investors have been dumping the small caps lately, making them ripe for a turnaround trade. Lee indicated that the current conditions of small-cap stocks are shaping up to be a mirror image of the situation in 1999 when the sector went on a streak of outperformance that lasted more than a decade. “In 1999, this was also the same launch point for 12 years of outperformance. From 1999 to 2011, small caps outperformed by 650bp annually and a cumulative 113%.”
Warren Buffet while discussing small-cap stocks said:
“If I was running $1 million today, or $10 million for that matter, I’d be fully invested. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50 percent a year on $1 million. The universe I can’t play in has become more attractive than the universe I can play in. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in.”
As of June 2024, almost 1600 small-cap stocks are being traded in the US stock exchanges, so to help our readers diversify their portfolios, we have filtered out the top 10 small-cap stocks with upside potential.
Methodology
To collect data for this article, we used a stock screener and filtered the stocks with the current market cap between $250 million and $2 billion. To shortlist these 10 stocks, we took the small-cap stocks with an upside potential of over 50% backed by at least 11 or more Wall Street analysts’ price targets as of June 15th, 2024, and ranked them accordingly. Here are the top 10 small-cap stocks to buy according to analysts.
A residential home showcasing the success of a solar energy system installation.
Sunnova Energy International, Inc. (NYSE:NOVA)
Upside potential as of June 15th, 2024: 182.18%
Market Cap: $660.82 million
Ranked as the best solar company of 2024 by CNN, Sunnova Energy International, Inc. (NYSE:NOVA), engages in the provision of energy as a service in the United States. The company works towards making clean energy more accessible and affordable to homeowners and businesses. Sunnova provides its services in over 42 states making it one of the country’s most widely available solar installers, along with a broad range of payment options, it is an attractive service for customers.
The Houston-based company, reported a revenue of $720.65 million, a YoY increase of 29.22% from the $557.69 million. The analysts are predicting Sunnova Energy’s revenue to grow up to $904.23 million, with EPS going from -3.43 to -2.13 by the end of 2024. The 23 analysts with 12-month price forecasts for NOVA stock have an average target of $15.04, with a low estimate of $4.50 and a high estimate of $58. Wall Street analysts have maintained a Buy rating on this stock with an upside potential of 182.18% making it one of the best small-cap stocks to invest in.
It is expected that Sunnova Energy’s growth revenue will slow down, the forecast predicts a 32% annual growth rate by the end of 2024 which is lower than the historical 42% p.a growth over the last 5 years. But, when compared to other companies in the industry with analyst coverage, which are forecasted to grow their revenue by 4.5% per year, it is evident that even with an expected growth slowdown, Sunnova Energy International, Inc (NYSE:NOVA) is still expected to grow faster than the wider industry.
In Q1 of 2024, stocks of Sunnova Energy International, Inc (NYSE:NOVA) were held by 20 hedge funds in the Insider Monkey database, with D E Shaw holding the largest stake of 90,450,000 shares valued at $48.09 million.
Overall NOVA ranks 4th on our list of the best small-cap stocks to buy. You can visit Top 10 Small-Cap Stocks with Highest Upside Potential to see the other small-cap stocks that are on hedge funds’ radar. While we acknowledge the potential of NOVA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NOVA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.