Investors on the prowl for small-cap stocks are usually aware of the risks. Generically valued somewhere between $300 million and $2 billion, these companies are often in the earlier stages of their business life cycle. This brings a greater risk; operations are smaller, as are budgets, and often shares are highly speculative.
A general rule-of-thumb says that the lower the price of a share, the more vulnerable it is to short selling, sudden dips, spikes, and all-around volatility. But, these variables can also lead to quick and sudden profits for investors.
Yes, small-cap stocks are inherently far riskier than large-cap stocks, but if you are one who enjoys a risk, then here are three potential stocks on our radar today.
Small-Cap Stocks Investors Want to Know
Shotspotter Inc. (NASDAQ:SSTI)
Year-to-date, Shotspotter stock has returned 45% to investors. Founded in 1996, Shotspotter began listing two years ago and has since packed on approximately 243%.
Now in 2019, there is still far more growth potential ahead, and analysts are expecting Shotspotter to become profitable for the first time this year.
The company’s namesake product is a software that detects gunfire and notifies law enforcement in real time.
Microphones and sensors placed strategically around the city can pick up the sounds of gunfire and triangulate that sound to a precise location. These locations show up as a dot on a city map and authorities are instantly notified.
By improving police response time, the tool is helping to sweep up crime on the streets and as such, is helping to make neighborhoods safer.
The technology is already deployed across 90 US cities, including major cities such as Chicago and New York. Success here has encouraged seven new cities to adopt the software just last month.
With further growth expected and a $483 million market cap, there is plenty of room for upside. The company has plans to expand internationally and is likely to pull in more cities in the US as well.
Revenue is still relatively small—the company made just $34 million over the past year. However, Shotspotter is a strong takeover potential for defense giants such as Lockheed Martin Corporation (NYSE:LMT) or Northrop Grumman Corporation (NYSE:NOC).
As the demand for the technology grows, so does this potential, along with the likelihood of significant returns to investors.
SSTI stock is currently selling for $42.40 on the NASDAQ exchange.
Small-Cap Stocks: Benchmark Electronics (NYSE:BHE)
With a market cap of $957.62 million and shares selling for $24.83 USD, Benchmark Electronics creates the components found within brand-name electronic devices. It’s a simple business model really; quite often big brand electronics outsource their components and here’s where Benchmark comes in.
The company supplies the wares found inside high-tech devices such as flight recorders, 3D printers, and medical imaging devices, among many others.
The benefits of being the maker and supplier can outweigh being the “name” on the product. One positive is that shares are less likely to be affected by hype or drama and, therefore, less volatile. Big names often come with lots of coverage, and this can wreak havoc on stock performance.
But like a ghost-writer for a novel, Benchmark receives all the perks of a steady and lucrative business, without any of the drama that comes with being a front-line name.
Shares packed on a cool 40% earlier in 2019 and hit just over $30 at the peak. Since then they have corrected some but at today’s prices, still represent 16.5% increase year-to-date. There is plenty more room to grow for these small-cap shares.
Small-Cap stocks: Axos Financial Inc (NYSE:AX)
Axos Financial appears to be dividing analysts lately.
According to RivertonRoll, several analysts have changed their position on these shares in recent weeks. Zacks upgraded its position from “sell” to “hold,” but ValuEngine lowered its position from a “sell” to a “strong sell;” however, “three have given a buy rating and one has given a strong buy rating,” earning this stock a “consensus rating of Buy and an average target price of $40.60.”
With a market cap of $1.64 billion, Axos Financial is the holding company for BofI Federal Bank. It is an online-only bank that analyst Matt Frankel says, at current prices, “could be a major bargain in an otherwise expensive stock market.”
Current prices equal $26.72 at the time of writing, roughly 40% below their 52-week high, and roughly 35% below the consensus target price.
There’s a lot to like with this bank and much more potential for growth. For one thing, because Axos runs online, its operational costs are far leaner than traditional banks.
Alongside this, growth has been impressive in recent years; Axos has “grown its deposit base by 12.8% and has seen its asset size jump by 10%, which has resulted in a 27% increase in EPS.”
Lastly, because Axos is a small bank, there’s every possibility that its current growth will continue for years to come. As Frankel explains further:
“With largely untapped product lines like personal lending and auto loans, as well as a highly successful (but still rather new) partnership with H&R Block, the bank has plenty of opportunities to achieve growth.”
Is this small-cap stock in finance for you?
What are your thoughts on the aforementioned companies? What small-cap stocks pique your interest?
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