When dealing with the best small-cap stocks to buy, investors effectively absorb higher risk for the possibility of substantive rewards. Even better, these rewards can come in quickly, enabling those seeking a boost in their portfolio to make up for lost ground. However, one needs to be aware of the inherent volatility involved.
For example, everyone would love to acquire small-cap stocks before breakout cycles – that’s only human nature. However, given the lack of predictability in the space, you could end up acquiring small-capitalization enterprises right before they break down. Therefore, it’s essential to conduct your own due diligence and not risk more than you can afford to lose.
Having gotten the important caveats out of the way, the most promising small-cap stocks present a compelling picture. Essentially, you don’t need to risk as much nominally to see robust gains due to the leverage of the law of small numbers.
If you can handle the heat in the kitchen, these top 7 small-cap stocks may be just what you’re looking for.
Vital Energy (VTLE)
Headquartered in Tulsa, Oklahoma, Vital Energy (NYSE:VTLE) engages in hydrocarbon exploration. On the surface level, Vital might seem to lack the relevance to be one of the best small-cap stocks to buy. After all, the political and ideological winds push renewable energy solutions. However, because of the energy density tied to fossil fuels, “black gold” will probably be relevant for years to come.
On a financial note, Vital offers speculators of small-cap stocks before breakout cycles much food for thought. According to investment data aggregator Gurufocus, the company posts a three-year revenue growth rate (per-share basis) of 16.3%. This stat outpaces 62.37% of its peers. As well, Vital features a trailing-year net margin of 48.36%, above 91.93%.
Even with this outperformance, VTLE trades at a trailing revenue multiple of 0.51. In contrast, the sector median stat stands at a loftier 0.97X. Therefore, VTLE ranks among the top 7 small-cap stocks to buy for market gamblers.
Tsakos Energy Navigation (TNP)
A shipping firm focusing on the hydrocarbon industry, Tsakos Energy Navigation (NYSE:TNP) owns a versatile fleet of 66 modern crude, oil, and product tankers. Again, while the political discourse focuses on green solutions, the reality is that the intermittent nature of certain renewable sources (such as wind and solar) requires energy diversification. Plus, the world runs on fossil fuels and that’s not likely to change anytime soon.
Indeed, the market seems to recognize this reality, making TNP one of the best small-cap stocks to buy. Since the start of the year, TNP gained nearly 18% of equity value. In the trailing one-year period, shares moved up almost 59%. Considering that Tsakos only carries a market cap of $548.51 million, it may have plenty of room to run.
Looking at the narrative financially, Tsakos presents a challenging backdrop. For example, the post-pandemic new normal hit TNP hard, leading to a negative three-year revenue growth rate. However, TNP also trades at forward earnings multiple of 4.91, which is quite cheap.
VSE Corp (VSEC)
A global aftermarket services and distribution firm, VSE Corp (NASDAQ:VSEC) provides supply chain management support and consulting services for land, sea, and air transportation assets. According to its public profile, VSE serves commercial customers as well as U.S. government agencies, including the Department of Defense. Given the difficult geopolitical environment, VSEC could be worth a long look for the best small-cap stocks to buy.
Featuring a market cap of over $825 million, VSE hits a sweet spot, enabling a nice balance between an established business track record and significant upside potential. Since the January opener, shares gained nearly 15% of equity value. Over the past 365 days, they’re up 52%.
Moving onto the financials, VSE could use some work. For example, its balance sheet only prints stats indicating middling strength. As well, its three-year revenue growth rate of 2.8% barely hits above average. That said, VSEC trades at a trailing multiple of 22.16, lower than 67% of rivals. With patience, this could be one of the promising small-cap stocks.
ACM Research (ACMR)
A semiconductor specialist, ACM Research (NASDAQ:ACMR) is a global, world-class equipment manufacturer serving the integrated circuit, compound semi, wafer-level packaging, and wafer manufacturing markets. It enjoys a broad portfolio of products, thus driving relevancies for would-be speculators. Operating as one of the stagehands of the tech industry, ACMR may be one of the underappreciated ideas for the best small-cap stocks to buy.
Since the beginning of this year, ACMR gained nearly 33% of its equity value. However, in recent sessions, shares have slipped, perhaps due to the consumer belt-tightening that has applied pressure to the wider semiconductor industry. However, because the chip-making space is so important, it may be a blip on the radar. If so, ACMR could be a discounted play among small-cap stocks before a breakout.
Financially, Gurufocus does warn that ACM Research could be a possible value trap. However, that forward multiple of 12.87 – ranked lower than 81.2% of the competition – may be too enticing for some. Again, with its in-demand expertise, ACMR could be worth a gamble with pocket change.
Rocky Brands (RCKY)
While investors might not want to consider the consumer discretionary space for their best small-cap stocks, they might make an exception for Rocky Brands (NASDAQ:RCKY). Founded in 1932, Rocky designs develops, manufactures, and markets outdoor, work, and western-style footwear. As well, it provides footwear for the military, presenting a broadly relevant profile.
However, since the start of the year, RCKY gave up nearly 11% of its equity value. Over the trailing one-year period, RCKY gave up nearly 34%. Now, I could be seeing things but looking at the five-year chart, it appears that the bulls have printed a baseline of support for RCKY stock. If so, it could be one of the top 7 small-cap stocks to keep on your radar.
Financially, Rocky Brands presents a mixed view. Getting the bad news out of the way first, its debt-laden balance sheet could use some shoring up. On the other hand, the company prints an impressive three-year revenue growth rate of 32%.
Perhaps the best part is that RCKY trades at only 0.3x trailing sales, lower than 79.39% of its peers.
A clinical-stage biopharmaceutical company, Zymeworks (NASDAQ:ZYME) is dedicated to the development of next-generation multifunctional biotherapeutics. Per its corporate profile, Zymeworks’ suite of therapeutic platforms and its fully integrated drug development engine enables the precise engineering of highly differentiated product candidates. Through its bispecific antibody specialty, Zymeworks focuses on cancer-fighting therapeutics.
In terms of chart performance, ZYME isn’t the most impressive idea among the best small-cap stocks for the moment. Since the January opener, it slipped a bit more than 1%. However, in the trailing one-year period, it gained almost 30% of its equity value. Should the company’s development process continue to move forward, it’s possible that ZYME could enjoy significant gains.
What’s perhaps most encouraging about Zymeworks is that it attracts largely positive attention from Wall Street analysts. Currently, the experts peg ZYME as a moderate buy with a price target of $13.84. This implies a growth potential of nearly 86%, making ZYME one of the promising small-cap stocks.
A development-stage biopharma, Chimerix (NASDAQ:CMRX) is dedicated to accelerating the advancement of innovative medicines that make a meaningful impact in the lives of patients living with cancer and other serious diseases. Per its public profile, Chimerix has an antiviral drug candidate developed as a potential countermeasure for smallpox. It’s also developing a potential first-line therapy for acute myeloid leukemia.
Although the scientific narrative intrigues, Chimerix carries a downright speculative profile. For instance, its market cap sits at just under $102 million, which is awfully diminutive, even for small-cap stocks to buy. What’s worse, CMRX slipped almost 39% since the start of the year. And in the trailing 365 days, shares gave up 52% of equity value. Obviously, risk-averse market participants need not apply.
Interestingly, though, analysts peg CMRX as a unanimous strong buy. On average, their price target stands at $7.67, implying 567% upside potential. Further, the high price target clocks in at $11, which translates to almost 857% growth.
On the date of publication, Josh Enomoto 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.