Target Hospitality Corp., and e.l.f. were the best-performing small-capitalization stocks of this month. Beauty Inc. and Hudson Technologies Inc. all more than doubled their prices in the past 12 month as the Russell 2000 Index, small-cap, dropped 4% and Russell 1000 Index, lost 7%. In 2023 investors have invested $4.2 Billion in ETFs and mutual funds that are focused on small stocks. This is compared to the outflows of $17 Billion from large-cap funds. Strong labor-market and consumer spending trends could help small-cap stocks outperform their competitors during market recoveries. Below are the top small-cap stock picks in three categories: fastest growth, best value and most momentum. All company data was updated on February 24th, and index data on March 2nd. The valuations of some companies below might be higher than the $2 billion upper limit for small-cap equity. This can sometimes happen during high volatility periods but they are still considered small-caps as they are not re-indexed as fast as their prices.
Best Small Cap Stocks of Value
These stocks are small-cap stocks with the lowest 12-month trailing Price-to-Earnings (P/E), ratio. Low P/E rates indicate that profit can be returned to shareholders through dividends and buybacks.
Sinclair Broadcast Group Inc.: This multi-media company provides services to 185 TV stations in 86 U.S. markets. They also own and operate 185 other television stations.
Jackson Financial Inc.: A financial holding firm that offers annuities to U.S. retail investors. Its subsidiaries include Jackson National Life Insurance Co. and Jackson National Life Insurance Co. New York.: The company declared a 62 cents per share first-quarter 2023 dividend in February, almost 13% higher than the prior year dividend. It will be paid March 23 to shareholders, effective March 14.
iStar Inc.: An investment company that offers corporate net leasing services. The company reported a loss of nearly $87 million in the last three months.
Small-Cap Stocks With the Fastest Growth Rate
These are the top small-cap stocks, as ranked using a growth score model that weights companies on a 50/50 basis of their most recent quarterly Year-over-Year (YOY), percentage growth in revenue and their most recent quarterly earnings-per-share growth. The success of a business depends on its sales and earnings. Because companies are not ranked by one growth measure, they are susceptible to accounting anomalies such as changes in tax laws or restructuring cost that can make one or both figures unrepresentative. Outliers are companies with quarterly EPS and revenue growth greater than 2500%.
DMC Global Inc: This company is a holding that offers architectural building products, metal fabrication services, well completion solutions, and other related services.
Vertex Energy Incorporated: Vertex Energy recycles industrial wastewater streams and makes and distributes traditional and alternative fuels. Vertex has sold its Heartland used oil collection and recycling business for $90million to GFL Environmental in February.
Fresh Del Monte Produce Inc: Del Monte sells, grows and distributes fruit worldwide.
Small-Cap Stocks that are most in demand
These are the stocks with small capitalizations that have had the highest total returns over the past twelve months.
Target Hospitality: This company specializes in rental and hospitality services. It develops and owns housing communities.
e.l.f. Beauty: A cosmetics company that makes and sells lipsticks. The net sales of the company’s fiscal 3rd quarter ended Dec. 31, 20,22 increased by 49%. For the company’s fiscal third quarter ended Dec. 31, 2022 net sales climbed by 49%, and e.l.f.
Hudson Technologies: provides products and services in the refrigeration system industry for both commercial and industrial customers. It also offers cloud-based management solutions for chilled water plants.
Things to Keep in Mind When Analyzing Small Cap Stocks
Management quality: Competent management is vital for any company. Potential investors need to do basic online research about key employees within the company (CEO and CFO). Is their track record of managing successful businesses? You should also check if the leadership team has shares in the company. Insider ownership of stock by company employees is an indication that they are committed to success and align their interests with those shared by shareholders.
Growing Revenue: Small companies have limited cash flow so they need to generate high-quality sales. Investors with small capital should search for stocks with strong annual revenue growth. This is a sign that a company is capable of disruptive innovation in its industry, and well-positioned for future profits. Yahoo! Investors can access this information. The Finance tab under “Financials”, which displays a company’s revenue in the last four years, is where you will find this information.
High Operating margin: A company’s operating Margin is its ability to generate profits through its primary operations without paying interest or tax. It’s a good idea when investing in small caps to look for continuously increasing operating margins. This is an indicator that a company can turn sales into profits.
Advantages of small-cap stock
Growth Opportunity: Small-cap stocks offer investors significant upside. By getting in early, small-cap stocks are able to take advantage of industry leaders and potentially become industry leaders. Because it takes less money to move the share price, small-cap stocks can double their market value quicker than companies with market caps of $1 trillion or more. Wall Street analysts and institutional investors can also be attracted to small-cap stocks that experience rapid growth, which can lead to higher shareholder returns.
Less Competition From Larger Investors Institutional investors, such as banks, hedge funds, REITs and banks, tend to invest in large-cap stocks and often overlook small-cap opportunities. This allows retail investors the opportunity to purchase the story of the company of tomorrow without being compelled by traditional Wall Street money.
