Small-cap stocks are shares of companies with market capitalizations of about $300 million to $2 billion. They have potential for substantial growth, making them appealing to investors seeking higher returns. However, their stocks may also experience more volatility, posing higher risks to retail portfolios.
Research by Fidelity suggests that small-cap stocks can provide access to niche markets and emerging industries. Yet, their relatively limited resources make them more susceptible to intense competition and business or economic downturns.
For instance, the soaring inflation level, expected interest rate hikes and geopolitical turmoil can derail small companies. But on the other hand, small-cap stocks may offer significant growth potential for long-term investors who can tolerate short-term price swings.
As a benchmark, Wall Street pays close attention to the Russell 2000 index, which comprises 2,000 small-cap companies. It is down about 8% year-to-date (YTD). Yet, since the lows seen in the early weeks of the pandemic, the index has more than doubled.
With that information, here are three small-cap stocks to buy that could gain traction in the coming months.
Carparts.com (PRTS)
52-week range: $5.90 – $20.74
Carparts.com (NASDAQ:PRTS) is an online provider of aftermarket auto parts and accessories. The company generates revenue primarily from sales through its websites and various online marketplaces.
Management announced fourth-quarter 2021 results on March 1. Revenue increased 15% year-over-year (YOY) to $138.3 million. Net loss widened to $5 million, or 10 cents per diluted share, compared to a loss of $3.5 million a year ago. The auto group forecasts double-digit revenue growth for 2022.
Analysts suggest the e-tailer could disrupt the industry in 2023 with a do-it-for-me (DIFM) service. It offers the convenience of using an app to call a mechanic to repair your car. Management hopes the DIFM service will expand its total addressable market by almost five times.
PRTS stock has declined 44% over the past year and 37% YTD. Shares have an attractive valuation at just 0.7 times trailing sales. The 12-month median price forecast for PRTS stock stands at $15.
Ping Identity (PING)
52-week range: $17.60 – $30.25
Ping Identity (NYSE:PING) specializes in identity-verification solutions that allow secure access to any service or application from any device. It serves about 60% of Fortune 100 organizations, including most large U.S. banks.
Analysts agree management has been successful in reaching out to so many enterprises with Ping’s identity-verification solutions. The company offers a cloud-based platform to identify and respond to enterprise-level threats.
Management released Q4 2021 results on Feb. 24. Revenue grew 19% YOY to $75.4 million. Yet net loss widened to $26 million, or 31 cents loss per diluted share, compared to a loss of $3.4 million a year ago. Cash and equivalents ended the period at $221 million.
Wall Street was pleased to see annual recurring revenue (ARR) growth of 21% YOY. Similarly, software-as-a-service (SaaS) revenue went up by 56% YOY. For fiscal 2022, management forecasts revenue to come in between $330 to $340 million.
PING stock has increased 23% over the past year and 16% YTD. Shares are trading at 6.6 times trailing sales. Meanwhile, the 12-month median price forecast for Ping stock stands at $30. A potential decline toward $25 or even lower would improve the margin of safety.
Range Resources (RRC)
52-week range: $8.47 – $32.06
Our final small-cap stock, Range Resources (NYSE:RRC), is a petroleum and natural gas exploration and production name. Its operations focus on the Marcellus Shale in Pennsylvania.
Range Resources released Q4 2021 results on Feb. 22. Revenue soared 162% YOY to $1.57 billion. Adjusted net income came in as $241.6 million, or 96 cents per diluted share, up from $4.4 million a year ago. The company ended the year with net debt of $2.6 billion.
In 2022, thanks to rising natural gas prices, Range Resources could generate more than $1 billion in free cash flow. The board plans to use $500 million of this cash for stock repurchases.
RRC stock has surged nearly 200% over the past year. Shares are trading at 7.9 times forward earnings and 2 times trailing sales. The 12-month median price forecast for Range Resources stock stands at $27. Interested readers could view a pullback as an opportunity to hit the “buy” button in RRC stock.
— Tezcan Gecgil
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Source: Investor Place