Small-Cap stocks have a higher growth potential compared to companies with stocks having a higher market cap. A company is classified as having a small market capitalization when that market cap falls between roughly $300 million and $2 billion.
We have gathered the five best small-cap stocks to buy with huge potential. Of course, not every small-cap company becomes a giant. Investing in small companies can be rewarding, but also comes with risks that investors need to understand.
If we compare the historical data of the Russell 2000, a small-cap-focused index, and the large-cap-focused S&P 500 since 2000. The results come in favor of small-cap stocks that have handily outperformed large-cap companies. Here’s a close look at small-cap stocks, including our picks for some of the best.
CarParts.com, Inc. (PRTS)
CarParts.com (PRTS), together with its subsidiaries, operates as an online provider of aftermarket auto parts and accessories. CarParts is an emerging company from a very promising sector. PRTS has a market cap of just over $645 million.
Under its brand name Carparts.com, the company has streamlined its business, and sales surged during the pandemic. PRTS is investing in technology and marketing and just opened two new distribution centers. It also looks primed for continued growth, due to a semiconductor chip shortage in auto manufacturing that is boosting new and used car prices. Over the long term, the company is targeting 20%-25% revenue growth. Meaning that Carparts.com is likely more than just a pandemic story.
The company has continued to report strong quarterly results. In the third quarter of 2021, CarParts.com recorded a 21% rise in net sales to $141.8 million from last year’s quarter and a 90% increase over a two-year period. While the gross profit during the third quarter rose 10% to $47.3 million, with a gross margin of 33.4%.
The only worrying thing has been the rate at which the company has burned its cash. Analysts believe that CarParts.com is well on track to achieve cash flow breakeven in the next 14 months. ROTH Capital has resumed the buy rating for PRTS stock with a price target of $17. With the price target of $17, PRTS is quite favorable to consider it as one of the small-cap best stocks.
ACM Research Inc. (ACMR)
As a manufacturer of cleaning equipment for semiconductor wafers, ACM Research (ACMR) is a “picks-and-shovels” play in the semiconductor industry. Investing in ACM Research provides exposure to a high-growth industry without exposure to the risk of commodity chip prices declining.
Additionally, ACM is an American company that conducts most of its business in China. That gives investors a relatively safe investing method for gaining exposure to the Chinese market. ACM is one of the rare small-cap companies that offer both high growth potential and solid profitability.
In the recent third quarter, ACM came out with quarterly earnings of $0.56 per share, beating the Zacks Consensus Estimate of $0.35 per share. Last year, ACM was expected to post earnings of $0.26 per share when it actually produced earnings of $0.19. That’s a 60% earnings surprise this year compared to -26.92% a year ago. Over the last four quarters, the company has surpassed consensus EPS estimates three times.
During three years of share price growth, ACM Research achieved compound earnings per share growth of 86% per year. This EPS growth is lower than the 119% average annual increase in the share price. This indicates that the market is feeling more optimistic about the stock, after the last few years of progress.
The revenues have also increased as ACM has a current gross margin of over 42% and a profit margin of just over 14%. Recently, ACM obtained two orders for ACM’s Ultra C SAPS V 12-chamber cleaning tools from a major U.S.-based global semiconductor manufacturer. That will boost ACMR’s revenues in the next year, which will keep the stock in the good books for investors, who wants to invest in small-cap best stocks.
The Benchmark Company has upgraded its ACMR stock rating to buy with a price target of $125.
AppHarvest Inc.
One of the more intriguing small-cap stocks that recently began trading is AppHarvest (APPH). APPH is a pioneer in vertical farming that went public in February 2021, via a merger with a SPAC.
AppHarvest is essentially a development-stage company and earned almost $2.3 million of revenue in the first quarter of 2021. The company aims to be the world’s largest indoor commercial farm. If its business model succeeds, then AppHarvest’s market cap could increase by multiples of its current valuation.
The company recently launched its new e-commerce site, shop.appharvest.com, and Fight the Food Fight campaign. Moreover, AppHarvest successfully completed the first harvest of its second season of tomatoes grown at its 60-acre flagship indoor farm in Morehead, Ky. The second season harvest grows from about 720,000 tomato plants, and the crop will continuously season harvest into the summer of 2022. AppHarvest’s first harvest of one began in January 2021. That’s just the beginning of this new broader farming market.
AppHarvest’s core focus is sustainability and that’s the key for the company going forward. The company leveraged lessons learned from the first season to work to improve its quality and volume of USDA No.1 tomatoes.
AppHarvest’s high-tech indoor farms are designed to grow more with fewer resources. It can produce almost 30 times more than open-field agriculture on the same amount of land with up to 90% less water. That’s amazing. As the world is moving towards renewable sources, AppHarvest’s farming techniques will grow in demand in the next few years, making its way towards the small-cap best stocks list.
APPH stock is full of potential and seems a great bet in the long run. Barclays has given an overweight rating to APPH with a price target of $25. While Oppenheimer has rated the stock to outperform with a $10 price target.
Axsome Therapeutics Inc. (AXSM)
Axsome Therapeutics (AXSM) is a small-cap biotechnology company that has a huge capacity to grow into giant biotech.
Axsome’s product pipeline includes therapies in various stages of development to treat migraine, Alzheimer’s disease agitation, and narcolepsy, among other illnesses. But it’s the company’s progress with a treatment for a major depressive disorder that has the Street in love with this stock.
AXSM stock collapsed this summer and is still around 57% below the high-water mark set near the end of 2020. Optimistic investment-bank analysts who follow the stock think it could soar 134% above its recent price.
Lately, the plunge in stock price has been mainly due to the delay of Axsome’s delay of AXS-05 as a treatment for depression. The company is working on the application of approval for AXS-05 but there’s no definite time frame of approval.
In addition to AXS-05 for depression, the FDA is reviewing an application that could make AXS-07 a new treatment for migraine headaches. The company also has a narcolepsy drug in phase 3 testing. Even if we assume AXS-05 for depression has no future. The rest of AXSM’s assets are most likely worth more than the company’s current worth.
AXSM has huge potential for growth and it will be a great addition to your portfolio in the list of small cap best stocks.
Eagle Bulk Shipping Inc. (EGLE)
Eagle Bulk Shipping (EGLE) engages in the ocean transportation of dry bulk cargoes across the globe. Recently, the company instituted its dividend policy, according to which, 30% of the net income will be allocated to the dividend payouts. The first dividend will be based on the company’s recently announced third-quarter results.
In the third-quarter results, Eagle Bulk announced quarterly earnings of $4.92 per share, beating the Zacks Consensus Estimate of $4.31 per share. This compares to a loss of $1.09 per share a year ago. EGLE reported $153.12 million in revenues, surpassing the Zacks Consensus Estimate by 11.08%.
Eagle Bulk recently appointed Costa Tsoutsoplides as the Company’s Chief Strategy Officer. Mr. Costa’s job is to develop Eagle’s Corporate strategy as well as lead capital markets initiatives and oversee ESG and investor relations. The company has outperformed this year and they tend to continue with strong growth momentum in the next year as well, to mark their place among small-cap best stocks.
In the last five years, Eagle Bulk has completely transformed the business through the cyclical uptrend. That has positioned Eagle as one of the leading integrated dry bulk shipowner-operators. Considering the EGLE’s performance in the past few years, it’s a good option to have as a small-cap stock having huge potential. BTIG Research has rated EGLE as a buy with a price target of $65.
