3 Hot Small-Cap Stocks for High-Risk, High-Reward Investors
For investors seeking ways to achieve substantial returns quickly, one avenue that holds great potential is investing in promising small-cap stocks. These stocks come with their fair share of risk. But by carefully selecting high-potential small-cap stocks, investors can position themselves for substantial returns.
Small-cap stocks refer to companies with market capitalizations falling between approximately $300 million and $2 billion. These companies are often young. However, they offer rapid growth potential, making them an attractive choice for investors. Yet, it’s crucial to note that small-cap stocks are generally less stable than their larger counterparts and can fall quickly.
Despite their volatility, small-cap stocks tend to outperform large-cap companies over the long term, especially during bull markets. With the major indices recently crossing into bull market territory, it may be time to focus on the top small-cap stocks to buy like the names below.
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CarParts.com (PRTS)
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Formerly known as Auto Parts Network, CarParts.com (NASDAQ:PRTS) is going through a transformation under new management. With a strategic consolidation of its web brands, the company streamlined operations and witnessed a remarkable surge in sales during the Covid-19 pandemic.
Not resting on its laurels, CarParts.com is actively investing in cutting-edge technology and robust marketing initiatives. This forward-thinking approach is complemented by the rapid expansion of its distribution centers as the company seeks to offer one-day delivery to 80% to 90% of its customers.
CarParts.com is poised for continued growth as it capitalizes on the ongoing semiconductor shortage impacting the auto manufacturing sector that has hindered new car production in recent years. Additionally, the company is taking advantage of the rising price of new and used cars, which is causing people to keep their existing vehicles longer, thus requiring them to spend more money on repairs.
While the pandemic has certainly played a role, CarParts.com’s success is not a temporary phenomenon. Management is targeting a long-term revenue growth rate of 20% to 25% and an adjusted EBITDA margin of 8% to 10%.
PRTS stock is down 35% year to date, despite the company reporting record results in March, to trade with a market cap of $228.7 million. With its transformative strategies and ability to adapt to market dynamics, CarParts.com is poised to continue its growth trajectory beyond the pandemic, making it a compelling choice for investors seeking top small-cap stocks to buy.
Perion Network (PERI)
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The boom in ad tech stocks following the pandemic can be attributed to the overall expansion of digital advertising and connected TV. Among the top small-cap stocks to buy in this sector is Israeli company Perion Network (NASDAQ:PERI), which has a market cap of $1.6 billion.
According to The Motley Fool, “Perion connects ad buyers and sellers through its Intelligent Hub (iHub), which enables cost-effective ad placements for brands and publishers, and also gives them value-added, customizable tools to improve ROI.”
Perion Network has gained a strong foothold in the market, benefiting from a close partnership with Microsoft (NASDAQ:MSFT). In fact, the company plays a vital role in helping Microsoft monetize its Bing search engine.
With a strategic focus on growth, Perion has been rapidly expanding through acquisitions while solidifying its position in premium ads. The company is well-positioned to capitalize on the ad tech industry’s continued evolution, and shares have the potential to deliver strong returns for investors seeking high-potential small-cap stocks.
Western Union (WU)
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Western Union (NYSE:WU) offers convenient money transfer services worldwide. With a market cap of $4.4 billion, it’s really more of a SMID cap stock, but it still offers plenty of upside potential. A crucial aspect of the company’s competitive advantage lies in its robust digital channel.
Although first-quarter results were not impressive, there are positive indicators suggesting Western Union is addressing recent challenges and moving toward overall stabilization. The company’s leadership position in the industry benefits from the highly scalable nature of the money transfer business. This advantageous position has granted Western Union a notable cost advantage.
There is concern regarding a stagnant top line, which may prompt a reassessment of the company’s value in the future. Yet, with a core emphasis on simplifying global money transfers, Western Union continues to distinguish itself as a prominent player.
With WU stock down 15% year to date and nearly 50% over the past two years, a small position in this beaten-down small-cap stock could yield a big return for investors willing to take accept the risk.
On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
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