The 3 Most Undervalued Micro-Cap Stocks to Buy Now: August 2023
Micro-cap stocks represent companies with a valuation of less than $300 million. It goes without saying that these are high-risk stocks. Therefore, I want to start by saying that investors should not allocate more than 5% of their portfolio toward these investments.
That said, it’s worth noting that micro-cap stocks are not purely speculative. These can be interesting businesses at an early growth stage. If they can deliver in the long term, micro-cap stocks can easily surge by 20x or 30x. Given that, it makes sense to consider some exposure to micro-cap stocks.
In this article, I discuss three micro-cap stocks to buy. One of the names is purely from the perspective of near-term trading. However, two micro-cap stocks can be considered for the next few years.
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Let’s discuss the reasons to be bullish on these micro-cap stocks to buy.
ElectraMeccanica Vehicles (SOLO)
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ElectraMeccanica Vehicles (NASDAQ:SOLO) is an interesting name among micro-cap stocks. I must mention that I would consider exposure to SOLO stock purely from a trading perspective. With the recent merger announcement with Tevva, I expect the stock to witness further upside. A 50% to 75% rally from current levels would be a good time to exit.
As an overview, ElectraMeccanica Vehicles was focused on single-seater EVs. However, the vehicle has failed to gain growth traction. The merger comes as an intermediate relief for the company.
The merged entity will be focused on commercial electric vehicles. The target is to achieve revenue of $1.3 to $1.5 billion by 2028. I see two concerns. First, cash burn is likely to sustain for an extended period. Further, the commercial EV industry already has intense competition. The merger does not, therefore, ensure value creation. SOLO is a good trading bet at deeply oversold levels.
Yatra Online (YTRA)
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The first micro-cap stock I discussed was purely from a trading perspective. However, Yatra Online’s (NASDAQ:YTRA) stock is among the micro-cap stocks worth holding for the long term.
As an overview, Yatra operates as an online travel company in India. The country will likely be among the fastest-growing economies in the world through the decade. As living standards improve, there will be significant demand for travel and tourism. Yatra is positioned to benefit.
It’s worth noting that for the 2023 fiscal year, the company reported 97.4% growth in revenue on a year-on-year basis. For the same period, the company’s adjusted EBITDA increased by 251%. Post-Covid, I expect a strong recovery to sustain, and as margins improve further, YTRA stock is likely to trend higher.
An important point to note is that the company has signed 97 medium to large corporate customers in the last financial year. In general, corporate customers translate into recurring business, which will help boost growth.
EZGO Technologies (EZGO)
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EZGO Technologies (NASDAQ:EZGO) is another micro-cap stock with high risk but can potentially deliver multibagger returns. It’s worth noting that EZGO stock has surged by over 240% in the last 12 months. But I remain bullish, considering the big addressable market for the company.
As an overview, EZGO manufactures, rents and sells e-bicycles and e-tricycles in China. With the broader push towards electric vehicles, the company stands to benefit. For the first half of FY 2023, EZGO sold 20,479 bicycles. For the same period, the sale of batteries and battery packs reached 8,964.
A renewed surge in Covid-19 impacted the company’s growth. However, with business returning to normalcy, e-bicycles sales will likely gain traction.
All that makes this a good time to invest in EZGO, as the stock price trend indicates that growth will accelerate. Further, with the company’s fundraising during the first half of the year, financial flexibility is robust.
On the date of publication, Faisal Humayun did not hold (either 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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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