In this article, we discuss the 11 best micro-cap stocks to invest in according to analysts.
Micro-cap companies, generally referring to publicly traded businesses with less than $300 million in market capitalization, are among the most volatile and high-risk investments in the stock market. However, these risks can also be highly rewarding for investors who have the appetite to make such bets. One reason for the generally visible sharp volatility in these stocks is that interest in these firms is driven more by sentiment, speculative flows, or external catalysts than by fundamentals. As such, these stocks become fertile ground for outsized gains, while remaining fraught with downside risk.
A cautionary tale in this regard was published by the news platform Financial Times in August. According to the report, investors lost close to $4 billion in July this year as pump and dump schemes targeted Chinese micro-cap stocks that were listed on the U.S. stock exchanges. These schemes often involve the use of coordinated social media campaigns that inflate the share price of a stock before a dramatic collapse. However, despite the negative attention, micro-caps remain a viable investment option, especially in the context of capital allocation and investors diversifying away from the small group of firms dominating the benchmark S&P 500.
Our Methodology
For this article, we used online stock screeners to identify companies with a market capitalization below $300 million that have an analyst upside potential of more than 20% as of October 10. From this pool, we selected the top eleven stocks and ranked them in ascending order of their upside potential.
These stocks are also popular among hedge funds. 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 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
Best Micro Cap Stocks to Invest in According to Analysts
11. Citi Trends, Inc. (NASDAQ:CTRN)
Number of Hedge Fund Holders: 22
Analyst Upside as of December 9: 20.94%
Market Capitalization: $290 Million
Citi Trends, Inc. (NASDAQ:CTRN) is one of the best micro-cap stocks to invest in.
On December 2, the company posted earnings for the third quarter, reporting a revenue of more than $197 million, up 10% compared to the revenue over the same period last year and beating market expectations by close to $10 million. In terms of guidance, the firm expects fourth-quarter comparable store sales to be up high single digits, and gross margin is expected to be in the range of 40% to 41%.
On December 3, DA Davidson analyst Michael Baker raised the price target on Citi Trends, Inc. (NASDAQ:CTRN) stock to $52 from $43 and kept a Buy rating on the shares. In an investor note, the analyst opined that there was a long way to go in this merchandise-driven turnaround since the company’s high single to low double digit comp momentum was continuing into the holidays. Baker further added that inventory was fresh, differentiated, and on-trend, and a high fixed cost structure meant above-average incremental margins.
Citi Trends, Inc. (NASDAQ:CTRN) operates as a value retailer of fashion apparel, accessories, and home goods.
10. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS)
Number of Hedge Fund Holders: 16
Analyst Upside as of December 9: 30%
Market Capitalization: $269 Million
1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) is one of the best micro-cap stocks to invest in.
Latest reports indicate that Alexander Zelikovsky is poised to take over as the Chief Information Officer at 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) and will report to CEO Adolfo Villagomez. In his CIO role, Zelikovsky will lead enterprise IT applications, data architecture, data management, cybersecurity, business intelligence, and support for AI and digital commerce initiatives.
In late October, 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) posted earnings for the first fiscal quarter, reporting losses per share of $0.83. The revenue over the period was more than $215 million, down close to 11% compared to the same period last year. Adolfo Villagomez, the CEO of the firm, has acknowledged in the past few months that the company has not lived up to expectations in recent years, but was using data to make smarter decisions while driving operational discipline, efficiency, and accountability to get back to growth.
1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) provides gifts for various occasions in the United States and internationally.
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