3 Beaten-Down Small Caps Building Momentum for a 2025 Rally

Key Points

• Battered-down stocks may look attractive, but it is important to be cautious of value traps.
• Without sentiment changing, beaten-down stocks can continue to fall. Positive momentum in shares can indicate a change in sentiment.
• These three stocks have overall gotten hit hard in 2024, but are seeing their share price recover going into the new year.

Beaten-down stocks can, at first glance, look like an opportunity to buy in at a cheap price. However, stocks usually have a reason to be down significantly. Buying into these stocks can sometimes mean that a value trap has lured an investor. A value trap is where the decline in a stock’s price makes it feel undervalued, but in actuality, the business fundamentals support the decline in value. This can make investors think they are getting a good deal, but the shares never recover or continue declining. In this case, identifying stocks that markets have beaten down but that have started to move in the right direction can be helpful.

Recent positive momentum shows that sentiment around the company is changing, possibly allowing shares to rise higher. Although investors might miss out on the initial rise, this strategy can also help prevent falling into a value trap. At the same time, staying aware of short-term over-exuberance is important. Below, I’ll detail three small-cap stocks that are down big overall in 2024 but are showing positive momentum in their share price going into 2025. All return figures are as of the Dec. 10 close.

Roadzen: Insurtech Stock That Just Inked a Huge Deal

Roadzen NASDAQ: RDZN has really gotten crushed through 2024, down 49%. However, things are turning around as of late, up 100% in one week. The company has been disappointing investors on its earnings releases this year, but recent news has sent shares skyrocketing. Roadzen’s home is in the automobile insurtech industry. It is not an insurance company. It provides technology to auto insurers, car makers, and vehicle fleet operators to increase safety and the amount of data they have.

News recently broke that one of the world’s largest gasoline transport companies has signed a five-year contract to use Roadzen’s DrivebuddyAI technology. It will use the technology on over 500 trucks for its operations in India. DrivebuddyAI is a driver assistance platform that promotes safety on the road. Features include monitoring of driver fatigue and drowsiness alerts. This makes sense, considering truck drivers spend tens of hours a day driving, which can weaken decision-making over time, opening companies up to liability. This adoption by a major player could spark interest from other companies. It could propel Roadzen to gain more traction in the trucking industry.

Fastly: Edge Cloud Company Recovering Solidly Over the Past Month

Fastly NYSE: FSLY is a small-cap tech company whose shares are down 42% year-to-date in 2024. However, the stock has shown signs of recovery, rising 35% in the past month. Fastly specializes in the edge cloud, a technology that brings computing closer to end users through a Points of Presence (PoPs) network. Unlike traditional centralized data centers, Fastly’s PoPs reduce latency by processing data and delivering content near the user.

This speed improvement can enhance user experiences. It can make websites load faster, potentially reducing e-commerce cart abandonment caused by slow loading times when traffic is exceptionally high. Fastly also stresses the programmable nature of its platform. Users can dynamically change how they deliver their content. In a period of high traffic, an e-commerce company may want to change its pricing to maximize profit. Fastly allows these changes to happen almost instantly.

Navitas: Silicon Alternative Chip Company Looks to Capitalize on Large Potential Market

Navitas Semiconductor’s NASDAQ: NVTS overall drop sits between the other two firms at 46% in 2024. However, it has exploded upward in the past month, up 101%. Navitas specializes in gallium nitride and silicon carbide-based semiconductors. Using these compounds to make semiconductors instead of silicon can provide significant advantages. They can allow systems to be more energy efficient and charge faster. This makes them a good fit for electric vehicles.

Navitas's sales growth was slightly negative last quarter. But, investors are likely encouraged by its $1.6 billion pipeline. The massive total addressable market of Navitas’s alternate types of chips is clearly very exciting to investors. However, it still needs to prove adoption and cost competitiveness. With only $22 million in revenue last quarter and an adjusted loss from operations of $13 million, the company is highly unprofitable. The company is reducing its workforce to prioritize prudent cost management. It is notable that Navitas has a very significant amount of short interest at nearly 15%.