We recently published a list of the 11 Most Promising Small-Cap Stocks According to Analysts. In this article, we are going to take a look at where Edgewise Therapeutics Inc. (NASDAQ:EWTX) stands against other promising small-cap stocks.
Robert Teeter of Silvercrest Asset Management recently appeared in an interview to express that he thinks small-cap stocks are currently facing a choppy market, but he also acknowledged that he anticipates a rally later in the year. Based on this sentiment, he advised clients on the importance of diversification within the S&P 500 and pointed to opportunities in international markets. We covered his stance in greater detail in one of our other articles, 10 Best Small-Cap Value Stocks to Buy Now. Here’s an excerpt from it:
“He noted that the Trump trade initially boosted small caps due to expectations of economic acceleration and lower interest rates, both of which are favorable for these companies. However, policy uncertainty and weaker-than-expected economic data have delayed their rally. Teeter believes that small caps will come into their own later in the year, but for now, they are facing a choppy market with significant rotation.”
However, later on March 26, Villere & Co. Portfolio Manager George Young joined ‘Market Domination Overtime’ on Yahoo Finance to discuss why investors should be looking at small-cap stocks. George Young stated that small caps currently appear cheap and have been underperforming relative to larger stocks. He highlighted that small-cap stocks have been inexpensive for a while. To support his stance, he pointed out that last year, the S&P 500 rose about 25%, while small-cap stocks increased by only 11%. He explained that this disparity suggests a regression to the mean at some point, which means that the valuation gap between small caps and large caps should eventually narrow. Young also noted a shift in market dynamics during Q1 of this year. While the S&P 500 was down ~2% then, the S&P 500 excluding the MAG7 stocks was actually up ~2%. He described this change as a relatively usual once, since stock market leadership often rotates between sectors and types of stocks. Young particularly favored the small-cap sector when questioned about long-term and steady investments.
Our Methodology
We sifted through the Finviz stock screener to compile a list of the top small-cap stocks that were trading between $300 million and $2 billion, and that had the highest upside potential (at least 40%). The stocks are ranked in ascending order of their upside potential. We have also added the hedge fund sentiment for each stock, as of Q4 2024, which was sourced from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A scientist in a lab coat using a microscope to study a cultured biopharmaceutical product.
Edgewise Therapeutics Inc. (NASDAQ:EWTX)
Market Capitalization as of April 23: $1.52 billion
Number of Hedge Fund Holders: 49
Average Upside Potential as of April 23: 245.54%
Edgewise Therapeutics Inc. (NASDAQ:EWTX) is a biopharmaceutical company that discovers, develops, and commercializes therapies to treat muscle disorders. Its lead product candidate, EDG-5506, is an orally administered small molecule that is in Phase II clinical trials. It is designed to address the root cause of dystrophinopathies, such as Duchenne muscular dystrophy and Becker muscular dystrophy.
A Scotiabank analyst recently initiated coverage on Edgewise with a price target of $50 and an Outperform rating. The analyst noted promising early clinical data from sevasemten, which is being studied for both Becker and Duchenne muscular dystrophy, and EDG-7500 for Hypertrophic Cardiomyopathy (HCM). Edgewise’s EDG-7500 program, in particular, is showing significant promise.
Top-line data from the Phase 2 CIRRUS-HCM 4-week trial, announced in April, demonstrated clinically meaningful reductions in Left Ventricular Outflow Tract gradients (LVOT-G) in participants with obstructive HCM. Building on these positive results, Edgewise is optimizing its dosing strategy in Part D of the CIRRUS-HCM trial, with initial data expected in H2 2025, and plans to initiate a Phase 3 trial in H1 2026. Given the significant unmet need for additional therapies in HCM, a disease affecting ~1 in 500 people, the development of EDG-7500 represents a growth opportunity for Edgewise.
Baron Health Care Fund is highly positive on the company and stated the following regarding Edgewise Therapeutics, Inc. (NASDAQ:EWTX) in its Q4 2024 investor letter:
“We initiated a position in Edgewise Therapeutics, Inc. (NASDAQ:EWTX), which develops drugs that target muscle physiology, including sevasemten to treat Becker’s muscular dystrophy (BMD) and Duchenne muscular dystrophy (DMD), and EDG-7500 to treat hypertrophic cardiomyopathy (HCM). Sevasemten is a myosin inhibitor that is designed to protect fast-twitch muscle against contraction-induced injury in muscular dystrophy patients. Sevasemten recently showed impressive Phase 2 data in Becker’s patients that suggests a meaningful benefit in muscle function that will likely translate into Phase 3 success. There are no medicines approved specifically for Becker’s patients today, and we think this could be a $1 billion drug. We think the drug should also work in Duchenne’s muscular dystrophy, since Duchenne’s is driven by the same underlying dysfunction in dystrophin protein as Becker’s. Edgewise is also developing EDG-7500, which targets cardiac sarcomere to treat hypertrophic cardiomyopathy. Although it’s early in development, EDG-7500 has shown early data that suggested impressive efficacy on LVOT gradient reduction without meaningful safety risks in the form of changes in ejection fraction. If this is borne out in more clinical trials, this would be an important point of differentiation versus existing treatments for HCM, which require patient monitoring and dose titration to avoid safety risks.”
Overall, EWTX ranks 2nd on our list of the most promising small-cap stocks according to analysts. While we acknowledge the growth potential of EWTX, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than EWTX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.