3 Small-Cap Stocks on the Way to Bigger and Better Days

Key Points

• A resurgent Chinese economy adds to the value proposition of Star Bulk Carriers.
• Evolv Technologies continues to add customers with its AI-based weapons screening systems.
• Central Garden & Pet Company is a profitable gem that has a niche position in two key areas where consumers continue to spend. 

In late 2023, many analysts called for 2024 to be the year of a small-cap stock renaissance. These stocks were battered as the Federal Reserve aggressively raised interest rates. Many of these companies rely on borrowing to fund their growth and struggled as the cost of borrowing increased. 

The Russell 2000 index, which tracks many small-cap stocks, is up 20% in 2024. But not all small-cap stocks participated in that rally. However, with the Federal Reserve suggesting that its 50-basis point cut in September was the first in a series of future rate cuts, borrowing conditions should improve for small-cap stocks, particularly those that already show solid fundamentals like the stocks mentioned here.  

Analysts are projecting earnings growth of at least 10% in the next 12 months for each of these companies. That growth and other catalysts make these stocks strong candidates to outperform the market in the next 12 months.  

Star Bulk Carriers Will Benefit From China’s Stimulus Measures 

Dry bulk carrier stocks aren’t the most exciting. But Star Bulk Carriers Corp. NASDAQ: SBLK is one to watch heading into 2025. It’s the largest U.S.-listed dry bulk company with a fleet of 160 vessels. The company also has a strong balance sheet and has been paying down debt at a rate of about $250 million per year, a pace it expects to continue to match in the future.

However, a key reason for the company’s short-term growth will likely come from China. The company has noted that dry bulk shipments to China were up about 7.5% in the first seven months of 2024. That was before the company announced new stimulus measures, which will likely increase demand for imports of raw materials like iron ore.  

Then, you have to consider the company’s valuation. SBLK stock is trading at just 6.9x forward earnings. The stock is up 7.6% in 2024, but analysts have a consensus price target of $29.33 which gives investors about 28% upside to go along with a dividend that has a 12.2% yield. The one risk is higher oil prices which would hurt earnings.  

Evolv Technologies Is a Play on the Application of AI 

Unfortunately, the nation experienced another school shooting in September. Perhaps anecdotally, the share price of Evolv Technologies Inc. NASDAQ: EVLV is up 59% in the 90 days ending October 3, 2024. Evolv provides a next-generation metal detection system that is rooted in artificial intelligence (AI).

A key benefit of the company’s Evolv Express system is that it provides a truly touchless security screening system. This allows an uninterrupted traffic flow into and out of the venues in which it operates. In fact, the company’s technology has screened over one billion people since 2019.  

The company’s products are used by one or more teams in every professional sports league. Evolv’s customer base also includes hospitals, churches, and school systems that are looking for a non-invasive way to screen for firearms, explosives, and tactical knives.  

However, even with the sharp move higher in the last three months, EVLV stock is still down 17.3% for the year and over 15% in the last 12 months. One concern is earnings. The company just posted its first profitable quarter. Another concern is competition. However, the company’s annual recurring revenue (ARR) continues to rise, suggesting this concern may be overstated.  

Central Garden & Pet Company May Be an Undiscovered Gem 

Last on this list of small-cap stocks poised for growth in 2025 is Central Garden & Pet Company NASDAQ: CENTA. As its name suggests, the company’s business is divided into two verticals. Its garden sector offers a range of lawn and garden supplies, while its Pet sector provides supplies for dogs, cats, and other pets.

Like many consumer discretionary stocks, CENTA stock lags the broader market. However, it’s still up about 3.8% in 2024. This comes as the company is showing a slight decline in the top line, which is offset by earnings that are growing year-over-year. 

However, the company points to its customer base which continues to spend on their pets. The company has also taken steps in its garden division to navigate through external challenges that are a constant in the business.  

The CENTA analyst forecasts on MarketBeat show bullish sentiment for the stock. The $42 consensus price target gives the stock an upside of 43%.