3 Small-Cap Stocks With Big Growth Potential

Key Points

• Small-cap companies may benefit from a strong U.S. economy heading into 2025.
• Firms like Immunome, Alliance Entertainment, and Hallador all stand out in the broader small-cap landscape for their promising products or agreements in the works or for their success at streamlining operations.
• Two of these three companies have significantly outperformed the market in the last year.

According to several indicators—including a robust labor market and tamed inflation figures—the U.S. economy heads into 2025 with strong tailwinds. Many of the securities that have been primary beneficiaries of this economic well-being are large-cap (or even mega-cap) titans in the tech industry.

Companies like NVIDIA Corp. NASDAQ: NVDA have shares that have doubled or even tripled in price in the year leading to December 11, 2024.

For many investors, these major players may be prohibitively expensive. Their rapid growth in the last several quarters may also prompt some investors to be cautious in case the bulk of the rally is already in the past. In these cases, it may make sense to look instead at small-cap companies—many of which have operations focused primarily or exclusively in the U.S., rather than on a global scale.

Small-cap firms can be a great way to build exposure to the U.S. economy in a targeted fashion while avoiding the risk of even smaller market capitalizations in the micro-cap space.

Small-cap companies also stand to benefit from a pick-up in M&A activity following a period of high inflation in 2022 and 2023. Likewise, small-cap firms tend to have an easier time financing their growth and scaling their operations when interest rates trend lower. If inflation remains low—and if interest rates fall in 2025 as some analysts have predicted—small-cap companies could get even more of a boost.

IMNM: Promising Drug Candidate Already Priced Into Shares?

Immunome Inc. NASDAQ: IMNM has a market cap of $876 million as of December 11, placing it squarely in small-cap territory. This biotech firm creates therapies for various types of cancers and has multiple promising products at various stages of development.

The company's most important product for investors to watch for now is AL102, a lead asset in a Phase 3 trial for certain types of fibromatosis. AL102 has strong potential as a treatment compared to products currently available on the market. What's more, Immunome has cash reserves to fuel another four or five quarters, which should give it ample time to bring AL102 to market assuming remaining trials go smoothly.

Investors should ask themselves whether the price of IMNM shares already reflects the potential of this breakout drug candidate. IMNM stock is up more than 91% in the year up to December 11, suggesting that the market may have already priced in a substantial amount of value associated with the expectation that AL102 will be successful. That said, IMNM shares are down almost half from their 52-week peak of more than $27 each achieved in March of this year, so the trajectory of the stock is complex.

AENT: Big Improvements, Still Room to Grow

With a market capitalization of just $315 million at December 11, entertainment industry e-commerce company Alliance Entertainment Holding Corp. NASDAQ: AENT is on the cusp of being a micro-cap firm. For additional perspective, it's notable to see where the company was a year ago—shares have ballooned from just over 80 cents each to $6.53 in that time.

This massive growth has been driven by Alliance's strong efforts to improve its efficiency and operations overall in the last several quarters. The company has slashed distribution and fulfillment costs by implementing automation and has improved its margins by focusing on direct-to-consumer sales strategies, which now comprise over a third of gross revenue.

Alliance has reported improving net revenues—the most recent quarter saw $229 million—and recently posted net income compared with a net loss the prior-year quarter. Revolver debt is down, helping to improve liquidity and reduce costs further.

All of these signs point to big success for AENT, and it's not surprising to see share prices have climbed steadily as the company has made these improvements. But the stock seems to still be undervalued, trading at a price/sales ratio of just 0.29 as of mid-December. Perhaps this is why short interest in AENT shares dropped significantly in November.

HNRG: Potential Data Center Partnership

Hallador Energy Co. NASDAQ: HNRG is a relatively small steam coal company operating in Indiana. Unlike the other companies on this list, Hallador has not significantly outperformed the market in recent months—it has a 1-year total return of just 12.8% as of December 11.

One reason Hallador is a stock to watch is its mid-November announcement that it recently signed a non-binding term sheet with a data center developer. Given Indiana's recent efforts to attract data center customers, Hallador is a likely candidate to provide energy for new developments.

A major partnership of this kind would boost the company's top line and could help to fuel additional arrangements with other partners. However, at this point, investors must wait to see if the agreement materializes; if so, HNRG shares could resume their upward trend.