In this article, we will take a look at some of the most oversold small-cap stocks that currently offer attractive upside to investors. On April 18, stocks in the U.S. market soared to their all-time highs as the S&P 500 broke through the milestone of 7,100 for the first time ever, and the Nasdaq Composite achieved its 13-day win streak since 1992. The stock’s upward movement followed the announcement by Iran that the Strait of Hormuz would stay open throughout the ceasefire period between Israel and Lebanon, which led to a fall in oil prices.
The small cap stocks performed exceptionally well, with the Russell 2000 hitting an all-time high and rising by more than 2% for the day. Energy stocks plummeted after West Texas Intermediate oil dropped by nearly 12% to $83.85 per barrel, whereas travel and cruise companies recovered impressively due to reduced political uncertainty. The Dow Jones Industrial Average rose by 868.71 points to close at 49,447.43, marking a gain of 1.79%.
From an investment perspective, the rapid shift in focus from tensions in the Middle East to risk-taking is a sign that identifying oversold small cap stocks can be crucial until sentiment remains unchanged. As the Russell 2000 index has bounced back by 14% since its lowest in March and hit all-time highs, finding the best small-cap stocks can reveal significant upside potential for investors. With that background, let’s explore our 10 Oversold Small Cap Stocks to Buy Now.
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Our Methodology
To identify relevant stocks for this article, we conducted a sector-agnostic screening of U.S.-listed companies with market capitalizations between $200 million and $2 billion. We narrowed down our search to include stocks with an RSI indicator below 30. Also, we only shortlisted stocks with at least 15% upside potential according to consensus, as of April 24 closing. Finally, we selected 10 stocks with the highest upside and ranked them in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 498.7% since May 2014, beating its benchmark by 303 percentage points (see more details here).
10. Ennis Inc. (NYSE:EBF)
Ennis Inc. (NYSE:EBF) is one of the 10 oversold small cap stocks to buy now.
The company’s recent results announcement offers a lot of encouragement. On April 20, Ennis Inc. (NYSE:EBF) reported its fourth quarter earnings of 35c per share, matching the prior year results. Quarterly revenue reached $96.4 million, compared to $92.7 million for the same period last year. Chairman, Chief Executive, and President Keith Walters highlighted that the results for the quarter met management’s expectations.
He noted that this year’s acquisitions contributed around $8.8 million to the quarter’s topline figures, which were partially offset by reduced organic volume. The gross margin remained healthy at 29.2%, against 29.5% recorded in the same quarter last year. In terms of operations, EBITDA for the quarter was recorded at $16.3 million, which translates into 17.8% in margins. This indicates consistency relative to the $16.5 million that was recorded in the same quarter last year.
Walters also highlighted that the company completed the ERP integration of Northeastern Envelope Company, its biggest acquisition during the year. The integration will help manage costs and pricing and maintain consistent margins. Acquisitions also delivered 5 cents of positive impact on diluted EPS and 14 cents on full-year EPS.
Ennis Inc. (NYSE:EBF) is a manufacturer and seller of business forms and various printed products. Under an umbrella of brands, it offers a vast range of products, which include envelopes, laser-cut sheets, tags, snap sets, jumbo rolls, and more. It also provides custom products like labels, stock tags, and stock pressure seal documents, to name a few.
