Target Hospitality Corp. and Hudson Technologies Inc. were among the top small-capitalization stocks performing this month. Beauty Inc., Hudson Technologies Inc., and Hudson Technologies Inc. have all seen more than doubling in their prices over the past 12 months, as the Russell 2000 Index (small-cap) dropped 4% while the Russell 1000 Index lost 7.
Up to $4.2 billion has been invested in mutual and exchange traded funds (ETFs) that focus on small-cap stocks, as compared to $17 billion outflows from large-cap fund investors. Strong labor market and consumer-spending trends could make small-cap stocks more attractive than their larger counterparts.
Below we look at the top small-cap companies in three categories. All data is from February 24, while index data is from March 2. You should note that some of these companies’ valuations may exceed the $2B limit for small-cap equity. They can still be small-caps despite being subject to high volatility. However, their valuations aren’t updated as frequently as their prices.
Best Value Small-Cap Stocks
These are small-cap stocks which have the lowest 12-month trailing price/earnings (P/E). A low P/E means that you are paying less for every dollar of profit.
Sinclair Broadcast Group Inc. This multimedia company is diversified and owns, manages, and provides services in 185 television stations located in 86 U.S. states. The company delivers content via digital platforms, multichannel program distributors, as well as other avenues.
Jackson Financial Inc. A financial holding that offers annuities across the U.S. to retail investors. Its subsidiaries comprise Jackson National Life Insurance Co. (New York), and PPM America. The company declared a 2023 first-quarter dividend of 62c per common share in February. This is almost 13% more than the prior-year dividend. It is due March 23 and payable to shareholders as of March 14.
iStar Inc. Real estate investment company. Also offers corporate net lease finance services. For the last three month of 2022, the net loss was almost $87 Million.
Stocks of small-cap stocks that grow fastest
These are the best small-cap stocks ranked by a model that ranks companies according to a 50/50 balance of their latest quarterly year-over–year (YOY), percent revenue growth and quarterly YOY earnings/share (EPS).
In order to be successful, both sales and earnings are important factors. A ranking company by only one growth measure makes it susceptible to accounting irregularities of that quarter (such changes in tax law or restructuring costs) which may make one figure not representative of the whole business. Outliers were companies that had a quarterly EPS or revenue increase of more than 2500%.
DMC Global Inc. This holds a company that supplies architectural building products, steel manufacturing services and well completion solutions.
Vertex Energy inc. Vertex Energy produces and distributes both conventional and alternative fuels, as well as recycles industrial waste. Vertex sold its Heartland used engine oil collection and recycling company to GFL Environmental early February for $90M.
Fresh Del Monte Produce Inc. Del Monte cultivates, distributes, sells a variety fruit and other produce all over the world.
Small-Cap Stocks That Have the Most Momentum
These stocks are small-cap and have the highest total return in the past 12 month.
Target Hospitality This is an exclusive rental and hospitality service company. It is a developer and owner of housing communities.
e.l.f. Beauty: Cosmetics company selling eyeliners, lipsticks, creams, skin products, and other related products. The company’s fiscal quarter ended Dec. 31, 2020, saw net sales rise by 49% and an e.l.f. It increased its market share by 150 basis point in the fiscal third quarter of 2022.
Hudson Technologies Provides products and service related to refrigeration systems. It offers cloud-based management software that can be used to control chilled water plants.
Things to Remember When Analyzing Small Cap Stocks
Management Qualit: Any company that wants to be successful in the market, or a smaller one, needs a competent management team. Potential investors should do some basic research online on key individuals within the company like the CFO and chief executive officer (CEO). Does the company have a history of successful business operations? It is also worth checking if the leader team holds shares in company stock. The ownership of stock shares by company insiders indicates a commitment towards success and aligns their interest with those of shareholders.
Increasing Sales Smaller companies often have low cash flows, which means they need to generate good sales. A strong annual growth rate is an indicator that a company can be disruptive in its field and can make a profit. Small-cap investors should therefore look for stocks that are likely to grow in revenue. Yahoo! provides this information to investors. You can find Finance under the tab “Financials”, where you can see a company’s revenue for the past 4 years.
High Operational Margins – A company’s operational margin indicates how efficient it can generate profit through primary operations before paying interest, tax and other charges. It is a good idea for small caps to seek out increasing operating margins. These indicate that a company is good in turning sales into profits.
Advantages of Stocks with Small Caps
Potential Growth Small-cap stocks have significant upside for investors. This is because they can get in before a company goes on to be an industry leader. A small-cap stock with a market cap below $1 billion can double its value more quickly than large companies like Amazon or Apple which have $1 trillion+ market caps. It takes much less money to move their share prices. Wall Street analysts, institutional investors and other investors may be interested in small-cap stocks with high growth rates, which could increase shareholder returns.
Less competition by Larger Investors: Institutional investor (such as banks and hedge funds) tend to stick with large-cap stocks investing, overlooking many smaller-cap opportunities. This allows retail investors to invest in the story of the future company without competing with Wall Street money.
