Small-capitalization stocks tend to suffer more severely during a broad-based market pull-back than large-cap peers. Hence, you’re likely to find plenty of undervalued small-cap growth stocks that could significantly grow your portfolio.
The charm of investing in such stocks is that they could offer moonshot potential that could add a new dimension to your portfolios. Moreover, with the current market downturn, many of them are now priced for robust returns.
A multitude of factors has ravaged the equities market. Rising inflation and interest rates have crippled consumer confidence and have compelled investors to avoid risky offerings such as growth stocks. And if these growth stocks belong to small-cap businesses, they are even riskier for investors to bet on.
Nevertheless, the value of such undervalued small-cap growth stocks can’t be ignored, especially during the current bear market.
Smith and Wesson
San Juan Basin Realty Trust
Movado (NYSE:MOV) is a hyper-focused player in the fashion niche, where it makes and markets various watch brands across the globe.
The pandemic weighed down its business results, but it’s back now, posting strong results again. Over the years, its delivered consistent revenue and EBITDA for its investors. However, the post-pandemic tailwinds have supercharged its business performance, with revenues growing over 42% on a year-over-year basis.
Revenues in its fiscal year 2022 were at a record high of $732.4 million. The stellar results were driven by reopening tailwinds and the rise in the number of retail locations in operation. Additionally, free cash flow has soared to over $125 million, more than a 550% improvement from a couple of years ago.
Results during the first quarter have followed suit, with a 21.2% revenue bump from the first quarter of 2022. Hence, it remains in incredible shape to deliver a strong performance this year.
Perion Network (PERI)
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Perion Network (NASDAQ:PERI) is a small-cap demand-side ad tech platform primarily focusing on “search” and “display” advertising spaces.
Search advertising works with Microsoft’s (NASDAQ:MSFT) Bing, and for display advertising, it targets connected TV. The latter has been contributing more to company sales of late.
The company is purely focused on driving growth and has streamlined its business by divesting unprofitable activities.
Hence, recent results have been highly encouraging. It continues to post double-digit revenue growth (except for 2020) and has reiterated its guidance for the year, expecting a 32% increase in sales from $620 million to $640 million.
It’s known that YouTube accounts for the lion’s share of ad-supported streaming on connected TVs.
Smith & Wesson (SWBI)
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Smith & Wesson (NASDAQ:SWBI) is the leading firearms and related equipment producer. It sells directly through dealers to the army, law enforcement and individual customers in the U.S. and overseas. It boasts excellent margins, which has plenty to do with the outsourcing model that enables it to deal with demand changes quickly.
Moreover, it has grown sales by over 17% over the past five years, though it’s down recently as pandemic-era gun sales slow down. During the pandemic, SWBI did well to grow its sales at a staggering pace and pay down its debt.
Additionally, its free cash flows soared to $293 million in fiscal 2021, a 256% increase from the previous year. Once the market imperfections clear out, its top-line results are likely to rebound significantly.
San Juan Basin Royalty Trust (SJT)
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San Juan Basin Royalty Trust (NYSE:SJT) is a fixed investment trust with a 75% royalty interest in the San Juan Basin Properties. It derives roughly 96.8% of its royalties from natural gas and the rest from oil. Moreover, it generates royalty income from 151,900 gross producing acres. Over the years, it’s been a highly successful business, generating double-digit revenue growth in the past five years.
Results of late have been boosted by the rising demand for domestically produced natural gas amidst geopolitical tensions.
Unfortunately, with the Freeport LNG explosion, natural gas prices took a hit. However, once the facility returns online, I expect a massive surge in LNG exports, with natural gas prices resuming the uptrend.
That bodes well for SJT stock, and its whopping 10.2% dividend yield makes it an incredible bet for the long haul.
Hackett Group (HCKT)
Hackett Group (NASDAQ:HCKT) is a strategic consultancy company that offers its clients a wide variety of services, including benchmarking, business transformation, executive advisory and other related services.
The technological step-changes during the pandemic have significantly boosted its long-term prospects. Moreover, its solid dividend of 2.2% and cheap valuation make it a screaming buy.
Revenues have been heading northward since the pandemic pulled them down, with a corresponding increase in profitability. EBITDA growth over the past 12 months has exceeded 113.4%.
One of Hackett’s big strengths is that it doesn’t depend on its top clients. That’s typically the Achilles heel for most consultancy providers, but Hackett has done well to attract a much broader client base. The consulting service market could grow at an impressive 4.3% through 2026, with company’s such as Hackett ruling the roost.
Park Aerospace (PKE)
Park Aerospace (NYSE:PKE) specializes in the development of advanced materials used on aircraft structures. It’s a relatively tiny business compared to its peers in the commercial aviation and defense segments. And despite its impressive performances and solid dividend yield, it’s flown under the radar.
Moreover, a couple of growth catalysts could pay big dividends down the line for the business.
For starters, military spending habits will likely evolve amidst the Russian invasion of Ukraine. Park Aerospace manufacturers some of the key components in Surface-to-Air-Missile systems that are likely to be high in demand in the coming years. Furthermore, it develops the nacelles and thrust reversers in the Airbus 320neo.
The Airbus A320neo’s production rates will likely ramp up from 2023 and could contribute significantly to Park’s top-line results.
Paysign (NASDAQ:PAYS) is a Nevada-based small-cap payments business that provides processing services and prepaid cards under its brand for consumer, public and corporate applications. After last year, it had close to 4.3 million cardholders with over 440 programs. Some of its programs cater to corporate rewards, healthcare reimbursement payments, consumer rebates and a whole host of other programs.
The business has gained massive traction lately. Its sales margins have risen aggressively in recent years, and it expects to continue delivering for its shareholders. Moreover, it closed out last year with an unrestricted cash balance of $7.4 million. Therefore, it operates a relatively lean balance sheet, allowing it to fund its development projects organically.
Additionally, it delivered another earnings beat during the first quarter this year, with over a 30% jump in sales.
On the date of publication, Muslim Farooque did not have (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.
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