Before you invest in small-cap stocks, you should be comfortable with the risk that they present. By definition, a small-cap stock is one that has a market capitalization of less than $2 billion. But this leaves them prone to volatility. And when the market goes through a sell-off or correction these stocks can suffer steep losses.
Those concerns are being amplified as the Federal Reserve is pledging to raise interest rates as part of their efforts to implement a less accommodative monetary policy. And that means if your investment timeline ends in the next few years, you may want to look elsewhere.
However, if you have a longer time horizon, quality small-cap stocks have historically provided investors with an opportunity for high growth. In this special presentation, we're looking at seven small-cap stocks. Some have an interesting story that is playing out right now. Others have a narrative that should provide a catalyst for the stock once the economy is back on firm footing.
Here are seven small-cap stocks we believe deserve a closer look.
Quick Links
- CarParts.com
- Dine Brands Global
- Guaranty Bancshares
- ACM Research
- Perion Network
- Guess?
- Shoe Carnival
#1 - CarParts.com (NASDAQ:PRTS)
Buying a new or used car in the last 18 months has illustrated the delicate balance between supply and demand. That has made more Americans decide to keep on rolling with their current ride. And that is the bullish story behind the online auto parts retailer, CarParts.com (NASDAQ:PRTS).
The semiconductor shortage that is at the heart of the supply chain issue is not likely to be significantly different until 2023. That’s the catalyst behind the bullish outlook for CarParts.com. The company is forecasting revenue growth between 20% and 25% and adjusted EBITDA growth between 8% and 10%. The company continues to post year-over-year revenue growth.
As evidence that the company can meet its forecast, the company can now deliver to 80% of the country in two days. However, CarParts.com continues to build new distribution centers.
PRTS stock is down 35% since the beginning of the year putting it at the lower end of its 52-week range. One reason for this is that the company is not projecting profitability in the coming year. However, analysts still give the stock a 127% upside.
About CarParts.com
CarParts.com, Inc, together with its subsidiaries, operates as an online provider of aftermarket auto parts and accessories in the United States and the Philippines. It offers replacement parts, such as parts for the exterior of an automobile; mirror products; engine and chassis components, as well as other mechanical and electrical parts; and performance parts and accessories.
Read More - Current Price
- $0.96
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $1.60 (66.7% Upside)
#2 - Dine Brands Global (NYSE:DIN)
Dine Brands Global, Inc. (NYSE:DIN) owns and franchises casual and family dining restaurants. It operates through four segments: Franchise, Rental, Company Restaurant, and Financing Operations. Dine Brands has exposure to popular restaurant chains like Applebee’s and IHOP. That means the decision to buy DIN stock will depend on your opinion of the effect that inflation may have on a customer’s decision to eat out.
At this point, analysts believe they will. They give DIN stock a consensus price target that is 27% higher than the stock’s current price. The stock is flat for the year, but it does appear to be overvalued at the moment. And the company is projected to post strong revenue and earnings growth that may propel it forward.
Unlike some small-cap stocks, Dine Brands has strong institutional ownership. And after slashing its dividend in 2021, the company recently raised the dividend. This combination of growth and value makes DIN stock a compelling investment.
About Dine Brands Global
Dine Brands Global, Inc, together with its subsidiaries, owns, franchises, and operates restaurants in the United States and internationally. The company operates through six segments: Applebee's Franchise Operations, International House of Pancakes (IHOP) Franchise Solutions, Fuzzy's franchise operations, Rental Operations, Financing Operations, and Company-Operated Restaurant Operations.
Read More - Current Price
- $30.39
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $44.71 (47.1% Upside)
#3 - Guaranty Bancshares (NASDAQ:GNTY)
Speaking of companies that are increasing dividends, the next of the small-cap stocks on our list is Guaranty Bancshares (NASDAQ:GNTY). This is a Texas-based commercial bank offering personal and business banking services.
Shares of GNTY stock soared at the beginning of the year on expectations of the company’s earnings. The company posted a slight beat on earnings, but a slight miss on revenue. That was enough for investors to dump their shares.
But a potentially bullish sign is that bank insiders aren’t dumping their stock. In fact, a director recently purchased 2,000 shares since the bank last reported earnings. And as investors know there are many reasons to sell a stock, but only one reason to buy. That is an expectation that the stock is moving higher.
GNTY stock is down slightly for the year. However, the stock looks to have an attractive valuation. And with solid growth and earnings expected, analysts are giving the stock a 25% upside.
About Guaranty Bancshares
Guaranty Bancshares, Inc operates as the bank holding company for Guaranty Bank & Trust, N.A. that provides a range of commercial and consumer banking products and services for small- and medium-sized businesses, professionals, and individuals. The company offers checking and savings, money market, and business accounts, as well as certificates of deposit; and commercial and industrial, construction and development, 1-4 family residential, commercial real estate, farmland, agricultural, multi-family residential, and consumer loans.
Read More - Current Price
- $34.69
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $36.67 (5.7% Upside)
#4 - ACM Research (NASDAQ:ACMR)
The semiconductor sector has a long runway for growth. For investors looking to invest in the sector without dealing with the ever-fluctuating price of the chips themselves, investors can consider ACM Research (NASDAQ:ACMR). This is labeled a “picks and shovels” company because it manufactures cleaning equipment for the wafers used in semiconductors.
ACM Research is already a profitable company which is not typical of all small-cap stocks. And the company has beat analysts’ EPS estimates in 7 of the last 8 quarters.
With that said, ACMR stock has not been immune to the sell-off in stocks. And since the company does most of its business in China, it’s not without geopolitical risk. That may be a reason why short interest remains higher than many investors will be comfortable with.
And that may be reflected in the outlook from the analysts tracked by MarketBeat. These analysts give the stock an 86% upside. Although the company is only covered by five analysts, all five give the stock a buy.
About ACM Research
ACM Research, Inc, together with its subsidiaries, develops, manufactures, and sells single-wafer wet cleaning equipment for enhancing the manufacturing process and yield for integrated chips worldwide. It offers space alternated phase shift technology for flat and patterned wafer surfaces, which employs alternating phases of megasonic waves to deliver megasonic energy in a uniform manner on a microscopic level; timely energized bubble oscillation technology for patterned wafer surfaces at advanced process nodes, which provides cleaning for 2D and 3D patterned wafers; Tahoe technology for delivering cleaning performance using less sulfuric acid and hydrogen peroxide; and electro-chemical plating technology for advanced metal plating.
Read More - Current Price
- $14.91
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $30.00 (101.2% Upside)
#5 - Perion Network (NASDAQ:PERI)
For investors comfortable with investing in International stocks, Perion Network (NASDAQ:PERI) is one to watch. Perion is based in Israel and operates in the “advertising technology” sector. Specifically the company helps connect advertisers and publishers through its proprietary social marketing platform. The company is partnering with Microsoft (NASDAQ:MSFT) to monetize its Bing search engine.
The company has flourished in the pandemic. MarketBeat contributor Jea Yu summarized the company’s recent growth as follows: “The Company has been growing both organically and through acquisitions which prompted secondary offerings to (add) fuel to the strategy.” The company is also developing features such as QR scans and in-game ads during sports events.
Although the stock is down significantly from its 52-week high, PERI stock has still doubled since the start of 2021. And Jea Yu also points out that while the stock may look overvalued by some metrics, it offers a more attractive valuation than other competitors such as The Trade Desk (NASDAQ:TTD).
About Perion Network
Perion Network Ltd. provides digital advertising solutions to brands, agencies, and publishers in North America, Europe, and internationally. It offers Wildfire, a content monetization platform; search monetization solutions, including website monetization, search mediation, and app monetization; and cross-channel digital advertising software as a service platform.
Read More - Current Price
- $8.21
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $12.13 (47.7% Upside)
#6 - Guess? (NYSE:GES)
At the onset of the Covid-19 pandemic, Guess (NYSE:GES) stock tumbled below $10. But as stimulus checks rolled out, so did interest in the company’s fashion-forward clothing and accessories. And while revenue isn’t completely back to pre-pandemic levels, it continues to grow on both a sequential and year-over-year basis. And if investors needed another bullish reason, Guess stock looks to be fairly valued with continuing expectations for growth in earnings and revenue.
GES stock is basically flat for the year, but it hasn’t been a smooth ride. The stock followed the broader market and dropped sharply at the beginning of March. It has since recovered and one reason is the announcement that the company will continue to aggressively repurchase its shares. And the company’s commitment to shareholder value is also seen in a dividend that the company raised in November 2021.
GES stock has a 35% upside according to analysts. However, investors should keep an eye on the short interest that remains over 20% and may explain why institutional selling outpaces buying at about a 4:1 ratio.
About Guess?
Guess?, Inc designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. It operates through five segments: Americas Retail, Americas Wholesale, Europe, Asia, and Licensing. The company's clothing collection includes jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, activewear, knitwear, and intimate apparel.
Read More - Current Price
- $14.40
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $25.00 (73.6% Upside)
#7 - Shoe Carnival (NASDAQ:SCVL)
The last of our small-cap stocks is another solid option for value investors. However, the recent move in Shoe Carnival (NASDAQ:SCVL) is being driven more by high short interest creating a short squeeze. But short squeezes, like sugar highs, are not sustainable ways to boost the “energy” in a stock.
For that, you can look at the company’s recent earnings report. The company blew away earnings estimates and also beat on revenue. Currently SCVL stock is trading at the low end of its 52-week range. Right now analysts have a consensus price target that gives Shoe Carnival a 44% upside. But there may be more upgrades to come.
Shoe Carnival also pays a dividend. And despite the pandemic, the retailer has managed to increase its dividend in each of the last eight years. That’s no small accomplishment considering that many retailers cut or suspended their dividends in that same period. The company also has plans to repurchase shares. This attention to providing shareholder value combined with strong earnings makes SCVL stock an undervalued play.
About Shoe Carnival
Shoe Carnival, Inc, together with its subsidiaries, operates as a family footwear retailer in the United States. The company offers range of dress, casual, work, and athletic shoes, as well as sandals and boots for men, women, and children; and various accessories. The company also operates stores, and sells its products through online shopping at shoecarnival.com, as well as through mobile app.
Read More - Current Price
- $34.65
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $42.00 (21.2% Upside)
Because of their volatility, small-cap stocks can be a favorite of day traders and swing traders who are only concerned with short-term price movement. However, most small-cap investors are best served by using a buy-and-hold strategy with small-cap stocks.
That's because in some cases, these companies have a business model that takes time to catch on at scale. And it should be said that a higher percentage of these companies will go bankrupt, or never become more than a penny stock. That's why it's imperative for you to perform your due diligence before investing in small-cap stocks.
If you're looking for a way to invest in small-cap stocks without picking individual stocks, you can invest in the Russell 2000 index. Like some individual small-cap stocks, the Russell 2000 is underperforming the S&P 500. Still, investing in this index allows you to smooth some of the volatility that comes from picking individual stocks.
More Investing Slideshows:
