Micro-cap stocks, by definition, are stocks of companies that trade at a valuation range of $50 to $300 million. It goes without saying that investing in micro-cap stocks is a high-risk game. I would however not hesitate is allocating a small portfolio of my portfolio toward these stocks.
If the business grows, multi-bagger returns are guaranteed. It’s important to note that some micro-cap stocks are far from being purely speculative. This column focuses on three micro-cap stocks with decent business fundamentals. Based on company and industry-specific triggers, these stocks can skyrocket.
In terms of risk, micro-cap stocks, in general, are likely to face funding challenges. That’s offset to some extent if the industry outlook is promising or the potential product has a big addressable market.
I don’t have any specific target for the stocks discussed. However, if business developments remain positive, five-bagger returns would not be a big deal in the next five years. Even with a small allocation, these micro-cap stocks can be portfolio catalysts.
Yatra Online (YTRA)
I believe that Yatra Online (NASDAQ:YTRA) is among the best micro-cap stocks to buy. From current levels of $1.96, the stock has 10-bagger potential in the next five years. The reason is the company’s presence in the travel and tourism industry in one of the biggest markets in the world.
Yatra Online operates as an online travel company with a strong presence in India. The company is the second largest player in this segment after MakeMyTrip (NASDAQ:MMYT).
An important reason to be bullish on Yatra is the company’s focus on business travel. The company has blue-chip clients with a retention rate of over 90%. As business travel accelerates, Yatra is positioned to benefit. Additionally, the consumer business is likely to gain traction with a swelling middle class in India.
From a financial perspective, Yatra reported EBITDA-level losses from FY 2019 to FY21. However, the company has posted EBITDA-level profits in the last two financial years with margin improvement. I expect this positive trend to sustain and YTRA stock is likely to trend higher.
MediWound (MDWD)
MediWound (NASDAQ:MDWD) is another potential multi-bagger among micro-cap stocks. The stock has trended lower by 14% in the last 12 months and I see this as a golden buying opportunity.
As an overview, MediWound is focused on next-generation enzymatic therapeutics focused on non-surgical tissue repair. Currently, the company’s disruptive therapy for burn care has been commercialized with a total addressable market of $300 million.
Further, the company’s enzymatic therapy for wound care is already in Phase 3. Earlier this month, the company received positive advice from the European Medical Agency on Phase 3 trials. The company believes that the total addressable market for this therapy is in excess of $2 billion.
MediWound also has a biotherapy for the treatment of non-melanoma skin cancers in Phase I/II of trials. The candidate has a potential addressable market of $1 billion. Given the pipeline, MDWD stock seems massively undervalued. If positive developments sustain, I would not be surprised with multi-bagger returns in a quick time.
StealthGas (GASS)
StealthGas (NASDAQ:GASS) stock has surged by 67% for year-to-date. However, GASS stock remains massively undervalued at a forward price-earnings ratio of 4.3.
StealthGas is a provider of seaborne transportation services to liquified petroleum gas producers and users globally. For Q1 2023, the company reported revenue of $38.1 million. StealthGas also reported the highest quarterly profit in a decade. With a strong liquidity position and a healthy backlog, I expect the bullish momentum to sustain.
It’s also worth noting that the company has maintained low leverage and 10 vessels remain unencumbered. This provides the company with financial flexibility for expansion if charter rates remain attractive.
The industry outlook is positive with exports from U.S. and Middle East largely directed towards emerging economies. Further, global growth is likely to accelerate in 2024 as compared to the current year. The valuation gap is likely to fill in the coming quarters as StealthGas continues to deliver strong numbers.
On the date of publication, Faisal Humayun did not hold (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.
