After a volatile 2020, the U.S. economy is ready for a massive turnaround this year. The S&P 500 index dropped more than 30% in just 30 days in the first quarter of 2020. However, this year the benchmark gauge has stayed resilient, posting an 12.8% gain so far this year. That’s fueled investor interest in small-cap stocks once again.
Small-cap stocks are typically those which have a market capitalization of $300 million to $2 billion. They tend to be riskier in their operating models but can deliver superior growth prospects compared to mature companies with higher valuations. A well-rounded portfolio needs to have a good mix of small-cap companies with sizeable upside potential.
Small-cap stocks have been performing relatively well this year. For example, the Russell 2000 index, which tracks small-cap stocks, is up 15.3% so far this year. With all signs pointing to more in store, let’s look at seven small-cap stocks that could potentially break out this year.
- EverQuote (NASDAQ:EVER)
- Harvest Health & Recreation (OTCMKTS:HRVSF)
- Mesa Laboratories (NASDAQ:MLAB)
- National Western Life Group (NASDAQ:NWLI)
- CarParts.com (NASDAQ:PRTS)
- Winmark (NASDAQ:WINA)
- Heska (NASDAQ:HSKA)
Small-Cap Stocks to Buy: EverQuote (EVER)
EverQuote is a small-cap online insurance provider marketplace. It primarily focuses on auto insurance but has recently added other verticals, including life, health, home, and other specialized coverages. As a result, it is one of the most promising stocks in its industry, with analysts pointing to a 69% upside to EVER stock’s current price.
The company recently posted its stellar first-quarter results, where revenue of $103.8 million grew 27.6% year-over-year. Moreover, its variable marketing margin rose 32% to $31.4 million on a year-on-year basis. The company’s incredible performance is linked to a strong market for car sales and the expansion in its non-auto verticals, with virtually zero risks.
Additionally, it has a remarkable cash balance of $42.9 million according to its most recent balance sheet. With an impressive growth runway ahead, EverQuote is one of the top small-cap stocks to watch at this time.
Harvest Health & Recreation (HRVSF)
Harvest Health & Recreation is a cannabis producer that operates in multiple states in the United States. It has 37 retail locations in five states, with a core focus in four main markets: Arizona, Florida, Maryland and Pennsylvania. Though it had a troublesome 2020, it is on its way to “go green” this year, boosted by its booming sales in Arizona.
Arizona recently legalized recreational marijuana, and Harvest has wasted no time in opening up its dispensaries. It now has 15 dispensaries there, and the company has guided towards a first-quarter revenue target of $87 million. This represents a 25% gain over the fourth quarter, mainly attributable to the increased sales from Arizona.
Down the road, recreational sales from Florida and Pennsylvania could also provide a major boost to its revenue base.
While HRVSF stock has had a great run in the last year, up 214% in the past 12 months, those new markets should stoke further price appreciation.
Mesa Laboratories (MLAB)
Mesa Laboratories is an industrial equipment manufacturer based in Colorado. It operates in North America, Europe, and parts of Asia, providing a wide variety of equipment, including devices for air sampling, data loggers and infection control. Despite the challenges presented by the novel coronavirus, it has grown its top line by a whopping $127 million in the past four quarters.
Revenues have been the most impressive element of Mesa Lab’s financials in the past few years. Though operating earnings have also improved a fair bit, the revenues have grown by double-digits on average in the past several quarters.
It holds an impressive $245 million in cash investments, roughly $80 million more than its debts.
Despite those stats, MLAB stock has pulled back 12.3% YTD, providing a bit of a discount opportunity before an incredible growth runway ahead.
National Western Life Group (NWLI)
National Western Life Group is a life insurance company that provides financial protection and annuity agreements for retirement needs. Additionally, it also has its stakes in the real estate business as well. It operates in 49 U.S. states at this time and markets its products mainly through national organizations.
The company generated $549.5 million in revenues in 2019 compared to $479 million in the past year. 2020 was naturally tough for National and other companies in the sector, but it has done well to bounce back in the last couple of quarters.
Though it hasn’t provided any guidance for this year, its results should improve significantly amidst the economic recovery. Moreover, NWLI stock is trading at a significant discount to its peers, according to Morningstar data.
CarParts.com (PRTS)
CarParts.com is an online provider of auto market auto parts and accessories in the U.S. and the Philippines. It offers a wide variety of performance, replacement, electrical, chassis, and other related parts through its network of e-commerce sites and online market places.
The transition toward online purchasing has immensely benefited the company in boosting its topline performance. However, PRTS stock’s growth is sustainable and is attributable to the major initiatives taken by its management.
CarParts has struggled to grow its revenues in recent years. However, with new management, investments in its website and the development of its online infrastructure, it has successfully flipped its script.
In the past three consecutive quarters, revenues have grown by 90.20%, 69.50%, 61.40%. Looking ahead, it plans to expand into the highly profitable “hard parts” category and take a substantial share of brick-and-mortar auto parts retailers.
Winmark Corporation (WINA)
Winmark Corporation is a resale retailer which currently operates five brands in the North American region. Its most recognizable brand is Plato’s Closet, which sells apparel targeting young women. It has 1,264 franchises in operation at this time, which suffered greatly due to the pandemic. However, with the vaccine roll-out in high gear, WINA stock could be back in business again.
It recently posted its first-quarter results for fiscal 2021. The high points of were its earnings, where it posted a diluted earnings per share of $2.40, which is a 28% increase from the same period last year. Moreover, royalty sales were also up more than 25.75%.
Retail sales naturally took a hit during the quarter, but with the reopening of the economy, things will only get better.
Heska Corporation (HSKA)
Heska produces and sells veterinary diagnostic products for cats and dogs. It operates in several countries, including the U.S., Canada, Germany, Malaysia, Spain and France. Some of its core products include chemistry analyzers, hematology analyzers, electrolyte analyzers, and infusion pumps. HSKA stock has shot up a handsome 175% in the past 12-months.
Earnings results in the past three quarters have been spectacular. Its Q4 revenues rose by an unbelievable 90.50% to $64.32 million with EPS of 72 cents. The company is benefiting from the scale and efficiency of its operations, which is why its revenues have grown at a 16% CAGR in the past three years.
Looking ahead, the management targets an 18% topline CAGR in the fiscal period 2020 to 2023. Considering its track record, such a performance does not seem out of its ball-park.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.
