Small-cap stocks can generate high returns for investors. These smaller companies often fly under the radar even if they have strong financials. Many media outlets don’t pay as much attention to small-cap stocks and focus on their large-cap counterparts. However, many large-cap stocks started out as small-cap stocks. While large-cap stocks can still outperform market indices, most of these stocks have their best gains behind them.
Small-cap stocks can generate outsized returns, but it is important to choose from the best investments available. These three small-cap stocks are some investment ideas to consider.
AeroVironment (AVAV)
AeroVironment (NASDAQ:AVAV) is an American defense contractor that produces unmanned aircraft systems and ground vehicles. Geopolitical tensions can create more demand for AeroVironment’s core products. The company’s recent acquisition of Tomahawk Robotics can help it gain more market share and improve its core products. The company reported solid financials to start off the Fiscal Year 2024. Revenue jumped by 40% year-over-year while net income surged by 361% year-over-year.
AeroVironment projects Fiscal Year 2024 revenue between $645 million and $675 million. The midpoint, $660 million, represents a 22.1% year-over-year growth from Fiscal Year 2023. The company’s backlog has also been growing over the past few months, indicating more demand. AVAV shares have gained 38% year-to-date. The stock is pricy with a 60 forward P/E ratio, but strong net income growth can make the valuation more manageable in the future.
A strong quarter featuring double-digit profit margins and a market cap of roughly $3 billion makes this defensive stock worth a closer look.
Sterling Infrastructure (STRL)
Sterling Infrastructure (NASDAQ:STRL) is a construction company with a $2 billion market cap. Infrastructure is a fundamental component of the global economy, and Sterling is one of the fastest-growing companies in the industry.
The company boasts high-profit margins, healthy cash flow and strong operational execution. Those promises have led to one of the best-performing stocks over the past five years. During this amount of time, STRL shares have soared by over 500%. The stock has gained 129% year-to-date.
Analyzing the company’s financials helps explain the stock’s growth. In the second quarter, Sterling Infrastructure grew its revenue by 13% year-over-year. Net income also grew, clocking in at a 52% year-over-year gain. Sterling Infrastructure is reasonably valued with a 15 forward P/E ratio and a 0.77 PEG ratio. The company has a good history of increasing its revenue and earnings year-over-year for the past few years. The company’s profitability and positioning in a high-demand industry make this small-cap stock compelling.
Perion (PERI)
Perion (NASDAQ:PERI) is a small digital advertising company that consistently delivers revenue and earnings growth. In the second quarter, Perion reported 22% year-over-year revenue growth. The company also reported a 10% year-over-year growth in net income.
Perion is an Israeli company that has experienced downward price movement due to the ongoing conflict. Yet, the company’s financials still look strong, and a good Q3 report can help investors stay focused on long-term prospects. Perion has gained almost 800% over the past five years but is only up by 7% year-to-date. Perion had much higher gains for most of the year but is down by roughly 11% over the past month.
Shares currently trade at an 8 forward P/E ratio and a PEG ratio under 0.5. The pullback for Perion stock seems well overdone. The company should experience higher revenue and earnings growth rates in 2024 due to the election cycle.
On this date of publication, Marc Guberti held a long position in PERI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
