3 Stocks to Buy in the Event of a Small-Cap Comeback
There are some small-cap stocks to buy for this year. I think 2024 will be the time we see a revival of interest in these smaller companies, notably due to the inflated valuations of megacaps and the Magnificent Seven. At some point, investors must concede that the very high P/E ratios of names like Nvidia (NASDAQ:NVDA) and others are untenable due to the implied risk of making such a large bet.
The small-cap stocks to buy in this article have been neglected over the past couple of years while the S&P 500 and the Nasdaq move from strength to strength. Institutional interest in these names has waned as they must chase trends set by megacaps and can’t easily tap into small caps without shaking their stock prices.
But for individual investors with smaller account sizes and potentially a longer time horizon, these names could present lucrative investment opportunities that should be carefully considered. Here are three small-cap stocks to buy to add to your portfolio.
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Fiverr International (FVRR)
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Fiverr International (NYSE:FVRR) operates a leading online marketplace for freelance services. The company has innovated a range of premium services to unlock additional earnings and revenue from its traditional “$5 for a service” product model, which has proven to be very successful in attracting highly skilled freelancers and demanding clients.
Furthermore, I believe the gig economy will only expand in the future as we increasingly move away from permanent jobs and into more part-time work. Although FVRR peaked during the pandemic, as most tech stocks did, I think the best has yet to come for the company.
Fiverr’s fourth-quarter sales grew by 10.1%, falling short of expectations. For 2024, Fiverr’s revenue is forecasted to be around $383.3 million, a 6.06% increase from the previous year, with further growth anticipated in the subsequent years. It made a profit last quarter of around $3 million, a significant improvement from a $11.3 million loss in the same period the previous year.
With a forward P/E of just 12 times sales, I think FVRR is on the right track and should be considered by investors.
Lakeland Industries (LAKE)
Lakeland Industries (NASDAQ:LAKE) specializes in manufacturing industrial protective clothing and accessories.
I think LAKE could be one of those momentum plays for small-cap investors, thanks, in part, to its strong quarterly results. It reported net sales of $31.7 million for Q3, up from $28.4 million in the same period the previous year. Gross profit for the quarter stood at $13.4 million, up from $12.3 million year-over-year.
Its financial performance is also solid, with $3.8 million from operations in Q3 alone, driven by inventory reduction. In December 2023, Lakeland produced a positive operating cash flow of $7.7 million.
LAKE is simply one of those stocks that looks to be moving from strength to strength, and it appears some analysts on Wall Street agree. The company has a Strong Buy rating from one analyst, who gave it a 56.45% predicted upside for its stock price. Its EPS is also expected to make a dramatic leap by 384.50% to $1.16.
Upwork (UPWK)
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Upwork (NASDAQ:UPWK) operates a leading online platform connecting businesses with freelancers for various services.
The reason I’m so bullish on UPWK is due to its financial outlook for 2024, aiming for continued growth in revenue, adjusted EBITDA and non-GAAP diluted EPS. The company forecasts revenue between $760 million to $780 million, representing a year-over-year growth of approximately 11.7% at the midpoint. Adjusted EBITDA is expected to be in the range of $125 million to $135 million.
One analyst suggested that UPWK’s fair value is $25 per share, significantly higher than its current trading price. The stock is also trading at a price-to-sales ratio of 2.6 times sales, lower than its historical average and cheaper than its main competitor
I’m inclined to agree that UPWK is undervalued, especially given the huge difference between its trailing and forward P/E ratios, which stand at 225 times earnings and 18 times earnings, respectively.
Wall Street is pricing in a huge movement for its earnings. I think that makes UPWK one of those picks for investors to consider carefully.
On the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.
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