We recently created a list of 8 best small-cap stocks to buy according to analysts. to visit the free list, go to 8 Best Small-Cap Stocks Ready to Explode According to Analysts.
Though Upwork Inc. (NASDAQ:UPWK) ranks 8th in our list and we have analyzed the stock in detail.
Small-cap stocks are companies that have a market capitalization falling between $300 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. 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.”
Upwork Inc. (NASDAQ:UPWK)
Upside Potential as of May 21st: 59.03%
Market Cap: $1.53 billion
Upwork Inc. (NASDAQ:UPWK) describes itself as the world’s work marketplace that connects businesses with independent talent from across the globe. The San Francisco-based platform boasts a talent community encompassing more than 10,000 skills in categories including website & app development, creative & design, customer support, finance & accounting, consulting, and operations.
The company reported a revenue of $689.14 million in 2023, an increase of 11.5% from the $618.32 million reported the previous year. Meanwhile, net income was $46.9 million in 2023, compared to a net loss of $89.9 million in 2022. Upwork’s active clients also grew 5% YoY to 851,000 at the end of last year – an all-time high. Wall Street analysts have maintained a Strong Buy rating on the stock, with an upside potential of 59.03%, making it one of the Best Small-Cap Stocks to Invest in.
Upwork Inc. (NASDAQ:UPWK) can gain momentum among investors because of the flourishing freelance economy, especially after the pandemic. In addition, the company has demonstrated a strong financial performance over the last year, and it its recent earnings report, Upwork has also raised its outlook for adjusted EBITDA for the fiscal year 2024, which would benefit its share price going forward.
At the end of Q4 2023, stocks of Upwork Inc. (NASDAQ:UPWK) were held by 35 hedge funds in the Insider Monkey database, with Ancient Art (Teton Capital) holding the largest stake of 5,224,436 shares, valued at $64.05 million.
Upwork Inc. (NASDAQ:UPWK) ranks 8th on our list. To see all the rankings for free, go to 8 Best Small-Cap Stocks Ready to Explode According to Analysts.
If you are looking for an AI stock that is as promising as Microsoft 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.