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 Enovix Corporation (NASDAQ:ENVX) 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).

Enovix Corporation (NASDAQ:ENVX)

Analyst Upside Potential: 135.85%

Enovix Corporation (NASDAQ:ENVX) is a company that specializes in creating advanced batteries, specifically lithium-ion batteries that use silicon instead of traditional graphite. The company exercises its strategic edge over its customers by manufacturing batteries that can store significantly more energy compared to standard lithium-ion batteries. Moreover, their batteries are designed in a way that not only enhances energy capacity but also maintains safety standards, which is crucial for consumer electronics and electric vehicles.

The batteries developed by Enovix Corporation (NASDAQ:ENVX) have both consumer and industrial applications as it designs batteries for daily use devices including smartphones and laptops and for industrial usage including electric vehicles.

Enovix Corporation (NASDAQ:ENVX) has made significant strides in its business during the third quarter of fiscal 2024, focusing on scaling its operations and enhancing its market presence. It inaugurated its new manufacturing facility, Fab2, in Malaysia. This facility is designed to ramp up production capabilities, and it has already started shipping battery cells to customers. Moreover, the company also secured a development agreement with a leading smartphone manufacturer to qualify their battery products for mass production, expected to begin in late 2025.

During the quarter it generated $4.3 million in revenue marking a 2,058.50% increase year-over-year. Looking ahead management is expecting Q4 revenue to be $8.0 million and $10.0 million. It is one of the best small-cap stocks ready to explode as analysts’ 12-month median price target is pointing towards a 135.85% upside from current levels.

Massif Capital Real Assets Strategy stated the following regarding Enovix Corporation (NASDAQ:ENVX) in its Q2 2024 investor letter:

“Enovix Corporation (NASDAQ:ENVX): Enovix is perhaps a bit of an outlier in our portfolio given that it is a battery manufacturer selling into consumer goods markets, but it fits nicely in what we believe to be the Massif Capital analytical sweet spot, businesses where science/technology, geopolitics/geoeconomics and energy/materials overlap. While some would argue that Enovix is inappropriate for a liquid real asset portfolio, the traditional definition of real asset businesses is dated.

Traditionally, real asset businesses are those that own and operate real estate, infrastructure, and natural resource assets. While this definition is workable, and most of the companies we invest in fall into one of these categories, it does not consider the ever-growing role of applied physical sciences in specific manufacturing fields, nor does it take into account the growing importance of material sciences and the changing nature of energy in general. Enovix is a material sciences business aiming to transform an ever-growing list of unique, highly refined materials into energy storage devices. They create value by understanding materials’ physical and electrochemical properties better than others…” (Click here to read the full text)

Overall ENVX ranks 2nd on our list of the best small-cap stocks to buy. While we acknowledge the potential of ENVX 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.