We recently compiled a list of the 10 Best Small-Cap Stocks Ready To Explode. In this article, we are going to take a look at where Dynavax Technologies Corporation (NASDAQ:DVAX) stands against the other small-cap stocks.

Prospects For Extended Outperformance Of Small-Cap Stocks

On October 7, Chuck Royce, founder and Senior Advisor, and Francis Gannon, Co-Chief Investment Officer and Managing Director of Royce Investment, discussed the outperformance of small-cap stocks. While discussing the reasons that led to the Russell 2000 Index doing well in Q3 ’24, Gannon noted that the strong performance of the Russell 2000 Index, which was up 9.3%, in the third quarter of 2024 can be attributed to a “quintessential reversion to the mean,” as small-caps had lagged behind larger companies for an extended period. He thinks that the rebound was not surprising given the historical trends, as the small-cap index outperformed the large-cap Russell 1000, up 6.1%, and the mega-cap Russell Top 50, up 4.2% during this time.

Read Also: 7 Best Nano Cap Stocks To Invest In and 10 High Growth Non-Tech Stocks That Are Profitable in 2024.

On the other hand, Royce mentioned that he was surprised by the concentration of the small-cap gains. He noted that all the gains for the quarter were compressed at the start, as by early July 16, the index had already achieved a 10.6% increase from the end of June, marking its high for the quarter. Royce further mentioned that this rapid ascent was followed by a notable decline, with the index dropping 10.1% from July 16 to August 7 before recovering most of its losses by the end of September. Despite this volatility, he expressed satisfaction with the small-cap performance overall for the quarter, especially since it marked a reversal after small-caps last outperformed large-caps in Q4 2023.

Building further upon the volatility of small-cap stocks, Royce expressed that while volatility in small-cap stocks can be concerning, it is a normal part of investing in this asset class. He emphasized that they welcome volatility as it allows them to take advantage of price fluctuations for long-term gains. Historically, significant intra-year declines are common for small-caps, with the Russell 2000 experiencing double-digit pullbacks in 22 out of the last 25 years.

While answering how the sector can sustain its market leadership performance, Gannon highlighted that market breadth among large caps often leads to better performance for small caps. He pointed out that when the equal-weighted Russell 1000 outperformed its capitalization-weighted counterpart, small-caps typically led in performance. This trend suggests that an expansion of returns across different sectors is a positive indicator for small-cap stocks.

Moreover, both Royce and Gannon stressed that earnings growth is crucial for the long-term success of small-cap stocks. Gannon stated that while short-term market psychology can influence stock prices, consistent earnings are fundamental for sustaining long-term performance. He noted that despite a significant portion of small-cap companies lacking earnings, around 44.6%, those with earnings are expected to grow faster than their large-cap counterparts in 2025.

Our Methodology

To curate the list of 10 best small-cap stocks ready to explode we used the Finviz stock screener and CNN. Using the screener we shortlisted small-cap stocks (market-cap between $500 million to $2 billion) for which analysts are expecting more than 50% upside from the current stock price. Once we had shortlisted the stocks we cross-checked the analysts’ upside potential from CNN. Lastly, we ranked the stocks based on the ascending order of the analyst upside potential. Please note that the data was recorded on November 15, 2024.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Dynavax Technologies Corporation (NASDAQ:DVAX)

Analyst Upside Potential: 104.75%

Dynavax Technologies Corporation (NASDAQ:DVAX) is a commercial-stage biopharmaceutical company focused on developing and commercializing vaccines. Its primary product is HEPLISAV-B, a hepatitis B vaccine designed for adults aged 18 and older, which requires only two doses for effective immunization against all known subtypes of the hepatitis B virus. Additionally, the company also produces CpG 1018, an adjuvant that enhances the immune response and is used in HEPLISAV-B as well as in various COVID-19 vaccines. It is also working on a pipeline of new vaccine candidates targeting diseases such as shingles, tetanus, diphtheria, and plague.

Its HEPLISAV-B vaccine is a market differentiator. According to the company’s third-quarter report for fiscal 2024, the vaccine improved its United States market share from 41% last year to 44% during the most recent quarter. Due to the increase in market share of the vaccine, the net product revenue of HEPLISAV-B grew 27% year-over-year in Q3 2024 to reach $79.3M. Management is aiming to grow the market share of HEPLISAV-B to at least 60% by 2030.

The company has been growing its top and bottom line at a steady pace. During the third quarter, its total revenue improved 16% year-over-year to reach $80.6 million. Whereas, its net income grew by 23% year-over-year to reach $17.6 million. Management believes that Dynavax Technologies Corporation (NASDAQ:DVAX) is on track to achieve net product revenue of $265 million to $270 million for HEPLISAV-B and that too at around 80% gross margins during 2024. Moreover, they also expect the net income to remain positive during the rest of the year.

In addition, analysts’ 12-month median price target is pointing towards a 104.75% upside from the current levels making it one of the best small-cap stocks ready to explode.

Overall DVAX ranks 6th on our list of the best small-cap stocks to buy. While we acknowledge the potential of DVAX 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 a promising AI stock 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.