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10 Small-Cap Stocks With Huge Growth Potential

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·11 min read
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In this article, we will take a look at the 10 small-cap stocks with huge growth potential. You can skip our comprehensive analysis of these stocks and the merits of small-cap stock investing, and go directly to the 5 Small-Cap Stocks With Huge Growth Potential.

Investors remain optimistic about the steady recovery of the economy, backed by mass rollouts of COVID-19 vaccinations and stimulus checks to undo the financial impact of the pandemic. In this environment, small-cap stocks are gaining the attention of the Wall Street. The success of small-cap companies is often used as an indicator of the duration of a bull market, according to Wells Fargo & Company (NYSE: WFC) senior investment strategist Brian Jacobsen. Small-cap outperformance also indicates that the bull market is only in its early stages.

Due to the uncertainty caused by the pandemic, investors appear to be interested in investing in stocks that are undervalued compared to their earning potential. Small-cap stocks are gaining momentum as optimism for the post-pandemic economy grows. The Russell 2000 index of small-cap stocks has gained 70.85% in the last year, compared to 44.5% for the large-cap S&P 500 index. The S&P Small Cap 600 Index has gained 78.27% over the past twelve months, compared to the 65.27% for the S&P 500 Index.

Why Invest in Small-Cap Stocks?

Investing in small-cap stocks, especially during a global pandemic, offers huge growth potential while still ensuring long-term viability since these businesses typically concentrate on long-term ventures. Yet, investing in small-cap companies is riskier than investing in large-cap companies. According OSAM Research, small company stocks have delivered a compounded average annual return of 12% from 1926 to 2019, whereas large-company stocks have returned 10%. Although small-cap companies offer long-term growth prospects and higher returns, these companies tend to be more vulnerable to adverse events and bearish sentiments due to lack of capital, unlike large-cap companies.

A perfect example of a small-cap stock that grew big is hydrogen fuel cell firm Plug Power Inc. (NASDAQ: PLUG). The New York-based renewable energy company sells hydrogen fuel cell systems for industrial off-road and stationary power applications. Among Plug Power Inc. (NASDAQ: PLUG)'s key clients are retail giants The Home Depot, Inc. (NYSE: HD), Amazon.com, Inc. (NASDAQ: AMZN), NIKE, Inc. (NYSE: NKE), and Walmart Inc. (NYSE: WMT). The company projected record gross billings of more than $70 million and $67 million in revenue in the first quarter of 2021 after plunging to negative $316 million revenue in the fourth quarter of 2020. The 52-week price range of Plug Power Inc. (NASDAQ: PLUG) is $3.80 - $75.49. Plug Power Inc. (NASDAQ: PLUG) increased by over 411% over the past twelve months.

What makes smart investors stand out in the crowd is their ability to spot the companies that are going to grow exponentially in the future. Every major stock was once cheap and trading in an affordable price. For example, Amazon.com, Inc. (NASDAQ: AMZN) went public in 1997, at $18 per share, giving the company a market value of $438 million. Twenty-four years later, the company has a market cap of $1.6 trillion. Amazon.com, Inc. (NASDAQ: AMZN) is one of the biggest online retail platforms globally and a leading provider of cloud computing service with its Amazon Web Services (AWS) business. The company's net revenue jumped 44% to $108.5 billion in the first quarter of 2021, compared with $75 billion in the same quarter in 2020. Shares of AMZN increased 33% over the past twelve months.

Enova International, Inc. (NYSE: ENVA)

Just like Amazon.com, Inc. (NASDAQ: AMZN) in its earlier days, fintech firm Enova International, Inc. (NYSE: ENVA) is one of the small-cap stocks with huge growth potential. The company was founded in 2011 and is based in Chicago, Illinois. The company provides financial services such as the offering of installment loans and receivables purchases to clients in the US, Canada, Australia, and Brazil. Enova has offered over $40 billion in loans and funding to over 7 million consumers through market-leading solutions with the help of artificial intelligence and machine learning. The company's revenue in the first quarter of 2021 came in at $259 million with a net margin of 91.9%. Shares of Enova International, Inc. (NYSE: ENVA) surged 232% over the past twelve months.

10 Small-Cap Stocks With Huge Growth Potential
10 Small-Cap Stocks With Huge Growth Potential

Image by Pexels from Pixabay

It's all about diving deeper into business models and fundamentals of thousands of companies and coming up with those that have a long-term growth potential. But financial volatility is making this analysis difficult even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn't keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey's research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th, 2021, our monthly newsletter's stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017, and they lost 13% through November 16th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

With this context in mind, here is our list of the 10 small-cap stocks with huge growth potential.

Small-Cap Stocks With Huge Growth Potential

10. Uxin Limited (NASDAQ: UXIN)

Number of Hedge Fund Holders: 3

We start our list of the 10 small-cap stocks with huge growth potential with Chinese online used car dealer Uxin Limited (NASDAQ: UXIN). The investment holding firm headquartered in Beijing, China, runs an e-commerce site for used cars and car-related value-added products and services. Founded in 2011, Uxin Limited also offers financing through a third-party financing partner.

Uxin Limited (NASDAQ: UXIN) has a market cap of $884 million. The company posted revenue of $49.5 million in the fiscal third quarter of 2021, a 30% increase. The 52-week price range of Uxin Limited (NASDAQ: UXIN) is $0.7200 - $3.6000. The share price of UXIN increased by 108% in the last month.

There were 3 hedge funds that reported owning stakes in Uxin Limited (NASDAQ: UXIN) at the end of the fourth quarter. The total value of these stakes at the end of Q4 is $2.13 million.

9. Vaxart, Inc. (NASDAQ: VXRT)

Number of Hedge Fund Holders: 9

Ranking 9th on the list of small-cap stocks with huge growth potential is clinical-stage biotechnology firm Vaxart, Inc. (NASDAQ: VXRT). San Francisco-based Vaxart, Inc. develops oral vaccines that help the immune system fight against cancer and chronic viral infections. The company recently published positive outcomes from its oral COVID-19 vaccine candidate's clinical trial.

The oral coronavirus vaccine developed by Vaxart, Inc. differs from those produced by market leaders Pfizer (NYSE: PFE) and Moderna (NASDAQ: MRNA). The oral vaccine from Vaxart, Inc. elicited a more robust T-cell response than the injectable vaccines from Pfizer and Moderna. Vaxart, Inc. intends to have its COVID-19 vaccine candidate into a phase 2 trial by the middle of this year.

The company has a market cap of over $799 million and posted annual revenue of $4.05 million in December 2020, down 59% from $9.8 million in 2019. The 52-week price range of Vaxart, Inc. (NASDAQ: VXRT) is $2.23-$24.90. Shares of VXRT jumped 25.3% over the past three months.

There were 9 hedge funds that reported owning stakes in Vaxart, Inc. (NASDAQ: VXRT) at the end of the fourth quarter. The total value of these stakes at the end of Q4 is $16.3 million.

8. Summit Hotel Properties, Inc. (NYSE: INN)

Number of Hedge Fund Holders: 12

Ranking 8th in our list of the small-cap stocks with huge growth potential is American real estate investment fund Summit Hotel Properties, Inc. (NYSE: INN). The REIT invests mainly in the Upscale segment of the lodging industry in high-quality lodging properties with efficient operating models. As of May 2021, the REIT's portfolio of assets includes 72 hotels in 23 states.

Summit Hotel Properties, Inc. (NYSE: INN) has a market cap of $1.02 billion. The company's revenue came in at $57.8 million in the first quarter of 2021, down from $108 million in the same period in 2020. The 52-week price range of Summit Hotel Properties, Inc. (NYSE: INN) is $4.35-11.32. Shares of INN increased 82% over the past twelve months. On February 5th, Raymond James maintained its Outperform rating for Summit Hotel Properties, Inc. and raised its price target to $11.5 per share.

There were 12 hedge funds that reported owning stakes in Summit Hotel Properties, Inc. (NYSE: INN) at the end of the fourth quarter, up from 9 funds a quarter earlier. The total value of these stakes at the end of Q4 is $15.8 million.

7. Alamo Group Inc. (NYSE: ALG)

Number of Hedge Fund Holders: 12

Agricultural and infrastructural equipment manufacturer Alamo Group Inc. (NYSE: ALG) ranks 7th in our list of the 10 small-cap stocks with huge growth potential. The Texas-based company produces heavy-duty lawnmowers, backhoes, scrapers, aerial tree trimmers, and other construction equipment. If Congress passes the infrastructure bill, all of this heavy-duty equipment would be in higher demand, and Alamo Group Inc. will most likely benefit from it. The stock has the potential to gain value and register its name among famous stocks like Amazon.com, Inc. (NASDAQ: AMZN), Pfizer (NYSE: PFE), Plug Power Inc. (NASDAQ: PLUG) Moderna (NASDAQ: MRNA), NIKE, Inc. (NYSE: NKE), and Walmart Inc. (NYSE: WMT) in the coming decades.

The company has a market cap of $1.9 billion. The company's revenue in the first quarter of 2021 increased 12.5% to $17.5 million from $15.5 million in the previous year. The 52-week price range of Alamo Group Inc. (NYSE: ALG) is $81.69-$165.98. Shares of ALG jumped 78% over the past twelve months. The average analyst price target of $178.33 implies a 10.7% upside potential.

There were 12 hedge funds that reported owning stakes in Alamo Group Inc. (NYSE: ALG) at the end of the fourth quarter, up from 9 funds a quarter earlier. The total value of these stakes at the end of Q4 is $210 million.

Third Avenue Management, in one of its investor letters, said that future scenarios are likely to benefit Alamo Group Inc. (NYSE: ALG) and so they continue to have bullish projections for the company. Here is what Third Avenue Management has to say about Alamo Group Inc. in its letter:

"Another long-time Fund holding, Alamo Group, derives a majority of its revenues from state and local governments. Even though its products cater to basic government services (street sweeping, snow removal, roadside mowing, etc.), these products need to be replaced frequently. There is a groundswell of support to replenish state and local government coffers after surpluses were drained due to COVID-19. Alamo would be a beneficiary if and when this occurs.”

6. Cohu, Inc. (NASDAQ: COHU)

Number of Hedge Fund Holders: 13

Ranking 6th in our list of the 10 small-cap stocks with huge growth potential is semiconductor test and handling equipment supplier Cohu, Inc. (NASDAQ: COHU). The California-based tech hardware company was founded in 1947 and was formerly known as Cohu Electronics, Inc. The company has the most comprehensive range of back-end semiconductor production equipment and facilities. It offers other services such as thermal subsystems, interface solutions, vision inspection, and MEMS test solutions. The company has agreed to sell its Printed Circuit Board Test Group (PTG) division to Mycronic AB, a Swedish manufacturing equipment supplier, for a total consideration of $125 million.

Cohu, Inc. (NASDAQ: COHU) has a market cap of $1.8 billion. The company's net revenue increased 11.4% to $225.5 million in the first quarter of 2021, up from $202.4 million in the previous quarter in 2020. Average analyst price target for Cohu, Inc. (NASDAQ: COHU) is $62. Shares have seen about 160% gain over the past year.

There were 13 hedge funds that reported owning stakes in Cohu, Inc. (NASDAQ: COHU) at the end of the fourth quarter, up from 8 funds a quarter earlier. The total value of these stakes at the end of Q4 is $132 million.

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Disclosure: None. 10 Small-Cap Stocks with Huge Growth Potential is originally published on Insider Monkey.