Some of the top-performing stocks over the past 25 years started out as small-cap stocks. Amazon (AMZN 0.01%) was a $7 stock in 1998, and Tesla (TSLA 0.56%) had a market valuation of just over $1 billion in 2010.
However, investing in small-cap companies carries risks alongside rewards. While we’ll highlight some of the best small-cap stocks to buy, investors must also understand the potential downsides.
Small-cap refers to companies with a market capitalization between roughly $300 million and $2 billion, determined by multiplying the share price by the number of shares outstanding. Compared to larger companies, small-caps tend to have more volatile stock prices that fluctuate more dramatically. Nonetheless, over longer evaluation periods, small-cap stocks generally outperform larger ones.
As the chart illustrates, small-cap stocks have recently declined significantly due to a broader market pullback, driven in part by concerns about a Federal Reserve rate hike, particularly for high-priced growth stocks. Since small-cap companies are often in their growth phase and may have limited profitability, they typically experience more severe declines during risk-off market conditions, such as the beginning of 2022. In other words, small-caps often underperform during bear markets but outperform during bull markets.
Top Small-cap Stocks to Consider Investing in Now Many small-cap companies are not yet household names. Here are some small-cap stocks to consider:
- CarParts.com
Formerly known as U.S. Auto Parts, CarParts.com (PRTS -0.19%) is an online auto parts retailer that has undergone transformation under new management. By consolidating its web brands under the CarParts.com banner, the company has streamlined its business and seen surging sales during the COVID-19 pandemic. CarParts.com is investing in technology and marketing, and the company is rapidly adding new distribution centers. It can now deliver to 80% of the country in two days.
Moreover, the e-commerce company is poised for sustained growth due to a semiconductor shortage in auto manufacturing that is driving up prices of both new and used cars. In the long term, the company is targeting 20% to 25% revenue growth and 8% to 10% adjusted EBITDA, indicating that the stock offers more than just a pandemic story.
- ACM Research
As a manufacturer of cleaning equipment for semiconductor wafers, ACM Research (ACMR 2.87%) is a “picks-and-shovels” play in the semiconductor industry. Investing in ACM Research provides exposure to a high-growth industry without the risk of commodity chip prices declining.
Moreover, ACM is a U.S. company that conducts most of its business in China, offering investors a relatively safe investment approach for gaining exposure to the Chinese market. ACM is one of the few small-cap companies that offers both high growth potential and solid profitability.
- Perion Network
Ad tech stocks have boomed during the pandemic alongside broader gains in digital advertising and connected TV. One of the big winners is Perion Network (PERI 2.58%), an Israeli company that specializes in connecting advertisers and publishers through its intelligent hub, a unique offering in an industry where companies typically cater to brands or publishers.
The company also boasts a close partnership with Microsoft (MSFT 1.97%), helping it monetize its Bing search engine.
Perion has been growing rapidly through acquisitions and establishing a position in premium ads by offering features such as QR scans, customizable backgrounds, and in-game ads during sports events. The company is expected to achieve 42% revenue growth in 2021 and 29% growth in 2022. Like ACM Research, it is also profitable.
0 comment
Perseverance may be tough, but it helps us achieve our goals and realize our full potential.
What did the janitor say when he jumped out of the closet? “Supplies!”
Time is our most valuable commodity, and it’s important to use it wisely.
Music may seem trivial, but it has the power to evoke deep emotions and connect us to others.
Small-cap stocks are a high-risk, high-reward investment opportunity for those willing to take the chance.
Dreams may seem unrealistic, but they can be the source of motivation and inspiration.
Small-cap stocks are often overlooked by investors, but they can offer significant growth potential for those who are patient and strategic.
Finding the right small-cap stocks requires a deep understanding of the market and the companies you are investing in.
Small-cap stocks can be a good way to diversify your portfolio and reduce overall risk.
Investing in small-cap stocks requires a long-term perspective and a willingness to tolerate short-term fluctuations.
Investing in small-cap stocks requires a lot of research and a willingness to weather the ups and downs of the market.
Small-cap stocks are often seen as a barometer for the overall health of the economy, as they tend to be more sensitive to changes in market conditions.
Small-cap stocks can be a good choice for investors who are looking for opportunities to beat the market and achieve higher returns.
Small-cap stocks require a lot of attention and research, but they can offer great rewards for those who are willing to put in the work.
Small-cap stocks may be more volatile than large-cap stocks, but they can also offer greater returns if you choose the right ones.
What do you call a bear with no teeth? A gummy bear.