We recently explored the best small cap stocks to buy according to analysts. You can check out our full free list — 8 Best Small-Cap Stocks Ready to Explode According to Analysts.
Though Coursera, Inc. (NYSE:COUR) ranks 5th in our list, we have analyzed the stock in detail. Small-cap stocks are companies that have a market capitalization 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 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 has gained 9.42% on an annualized basis, not far behind the 10.92% annualized gains 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 efficiently 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.”
Coursera, Inc. (NYSE:COUR)
Upside Potential as of May 21st: 93.74%
Market Cap: $1.36 billion
Launched in 2012, Coursera, Inc. (NYSE:COUR) is one of the largest online learning platforms in the world, featuring courses, degrees, certificate programs, and tutorials in a wide range of subjects. Shares of COUR were held by 25 hedge funds at the end of Q4 2023, with Marshall Wace LLP holding the largest stake of over 2.5 million shares, valued at around $35.08 million.
Coursera reported a total revenue of $169.1 million for Q1 2024, up 15% from $147.6 million a year ago. Meanwhile, the company’s net loss was $21.3 million, compared to a net loss of $32.4 million the year before. COUR’s reported operating cash flow in the quarter ending March 31st 2024 was $24.5 million, compared to $4.7 million in the same quarter last year. It also had a free cash flow of $18.1 million, against $0.9 million a year ago. Analysts have maintained a Moderate Buy position on stocks of Coursera, with an average price target of $16.7, representing an upside potential of 93.74%.
Coursera, Inc. (NYSE:COUR) has seen its registered user base expand from 77 million in 2020 to 129 million in 2024, as of the month of March. The company is also actively engaging the modern AI technology to design its new courses.
Coursera, Inc. (NYSE:COUR) ranks 4th in our full list. You can check out our full free list of 8 Best Small-Cap Stocks Ready to Explode According to Analysts here.
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Disclosure: None. This article is originally published at Insider Monkey.