In this article, we’re going to talk about the 8 best micro cap stocks to buy according to analysts.

While the S&P 500 is flirting with record highs after a 21% gain in 2024, the small-cap Russell 2000 index is only up 12% for the year and 9% off its all-time highs recorded in 2021.

The underperformance of the small-cap Russell 2000 stems from being heavily weighted towards biotech companies, most of which are unprofitable. Likewise, the index has a huge holding on small-cap bank stocks struggling against the industry’s heavyweights. Given the underperformance, it is a surprise that investors are still inclined to pursue opportunities around small-cap stocks.

Similarly, given that 40% of small-cap stocks in the Russell 2000 Index are unprofitable, investors have their work cut out in selecting stocks to diversify their investment portfolio. Including a profitability tilt might make sense if stocks are, in fact, a call on a future cash flow stream. The goal is to stay clear of less stable companies focus on businesses generating and being well-poised to create long-term value.

READ ALSO: 8 Unstoppable Stocks That Could Make You Richer and 9 Best Dow Stocks to Buy According to Analysts.

In an interview with CNBC, Rob Harvey, the brain behind Dimensional U.S. Small Cap ETF, insists on the need to focus on profitable small-cap companies.

“There’s no reason to hold companies that really are scraping the bottom of the barrel in terms of profitability,” the firm’s co-head of product specialists told CNBC’s ETF Edge on October 14. “You remove those from your small cap universe, [and] you can do a lot for boosting returns.”

Sharing similar sentiments is ALPS Advisors Chief ETF strategist, who believes investors should focus on quality companies that are profitable and, therefore, able to pay and grow their dividends. Importantly, the focus should be on less volatile small-cap companies.

The sentiments come when small-cap companies start showing signs of life, having underperformed large-cap stocks for the better part of the year. While the Russell 2000 ETF gained 2.4% in the first two weeks of October, the S&P 500 only rose by about 1.9%.

One of the catalysts behind the small-cap stocks significant gains is investors reacting to September’s Federal Reserve half-point rate cut. Interest rate cuts are always beneficial to small-cap companies with more leverage on their balance sheet.

“Historical data suggest that smaller-cap stocks have tended to be the main beneficiaries once the Fed begins to lower rates Therefore, we continue to advise investors to increase exposure to this area since we believe it is only a matter of time before the fortunes of this group take a turn for the better.,” BMO Capital Markets’ Brian Belski wrote.

Another reason to pay attention to the best micro-cap stocks to buy has to do with the fact that they might be attractively valued when compared to large-cap stocks. With that, let’s take a look at the best micro cap stocks to invest in right now.

Our Methodology

To compile the list of the best micro-cap stocks to buy according to analysts, we scanned the Finviz screener and looked for stocks with a market cap of between $100 million and $300 million (our definition of micro cap stocks). Finally, we ranked the stocks based on their upside potential as of October 29. We have also added the hedge fund sentiment around each stock.

At Insider Monkey, we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Best Micro-Cap Stocks to Buy, According to Analysts

8. CPI Card Group Inc. (NASDAQ:PMTS)

Market Cap as Of October 29: $265.55 Million

Stock Upside Potential: 57.12%

Number of Hedge Fund Holders: 5

CPI Card Group Inc. (NASDAQ:PMTS) is a financial services company that designs, produces, and supplies fulfillment of financial payment cards. It offers financial payment cards and integrated card services to card-issuing financial institutions. Up by about 27% year to date, it is emerging as one of the best micro-cap stocks to buy as consumer spending receives a boost from lower interest rates.

The stock has been trading higher amid the strong performance of the company’s prepaid segment. Consequently, it has enjoyed solid sales growth owing to strong demand for card personalization solutions amid improvements in debit and credit card sales trends. The company delivered solid second-quarter results with a 3% sales increase, totalling $118.8 million, as gross profit rose 4% to $42.4 million.

Amid the strong performance in the year’s first half, CPI Card Group Inc. (NASDAQ:PMTS) raised its financial outlook for 2024 from slight to mid-single-digit growth. The hike comes amid expectations of long-term growth trends for the US card market that should lead to consumer card growth and widespread adoption of eco-focused cards. The company remains the leading provider of eco-focused payment card solutions, with more than 100 million eco-focused cards already sold.

Additionally, CPI Card Group Inc. (NASDAQ:PMTS) continues to return value to shareholders, having conducted a $20 million buyback in the second quarter.

7. Eventbrite Inc. (NYSE:EB)

Market Cap as Of October 29: $299.84 Million

Stock Upside Potential: 75%

Number of Hedge Fund Holders: 25

Eventbrite Inc. (NYSE:EB) is a technology company that operates a two-sided marketplace that provides self-service ticketing and marketing tools for event creators. Its platform allows event creators to plan, promote, and produce live events, reducing friction and costs and thus driving ticket sales.

Even though public events were halted due to the COVID-19 pandemic, Eventbrite Inc. (NYSE:EB) has tried to recover as the economy and demand for live experiences have increased. The platform has handled over 300 million tickets for over 5 million events in the past year alone. The event ticketing market is still very competitive, though. The company consequently raised prices through new creator fees to boost profitability, which raised net revenue per ticket but also contributed to a decline in the number of creators and paid ticket sales. If the business can successfully balance the two, it may discover

Consequently, it delivered mixed second-quarter results, with revenue increasing 7% year over year to $84.6 million. However, the company’s gross ticket sales dropped by $50 million to $890 million. Additionally, Eventbrite Inc. (NYSE:EB) was forced to lower its revenue outlook for Q3 due to a decline in paid ticket revenue as the company struggled to attract and retain creators. Amid the slowing revenue growth and in a bid to ensure financial discipline, Eventbrite has embarked on a cost reduction spree by laying off 11% of staff.

Notwithstanding a decline in the number of paid tickets sold, these developments show a company making a strategic shift to take advantage of the expanding live events market. Eventbrite Inc. (NYSE:EB)’s strong cash position and wise technological investments demonstrate dedication to long-term profitability and market leadership.

6. Zynex, Inc. (NASDAQ:ZYXI)

Market Cap as Of October 29: $281.87 Million

Stock Upside Potential: 97.37%

Number of Hedge Fund Holders: 14

Zynex, Inc. (NASDAQ:ZYXI) is a healthcare company that designs, manufactures, and sells medical devices for treating chronic and acute pain. It offers NexWave, a dual channel, multi-modality interferential current, transcutaneous electrical nerve stimulation, and neuromuscular electrical stimulation (NMES) device that is marketed to physicians and therapists.

Zynex, Inc. (NASDAQ:ZYXI) has received a significant boost from the Food and Drug Administration, strengthening its prospects in the pain management segment with the approval of TensWave. The device, which aligns with the company’s commitment to improving patient outcomes through innovative medical technology, has been clinically proven to reduce chronic and acute pain without using any medication.

Likewise, TensWave should strengthen the company’s prospects in the pain management device market, which is growing at a compound annual growth rate of 8.6% and is projected to be worth $3.3 billion by 2026. On the other hand, Zynex, Inc. (NASDAQ:ZYXI) delivered solid third-quarter results driven by a 13% increase in orders for its solutions, which led to revenues of $50 million compared to $49.9 million a year ago. Revenue per sales rep increased 25% year-over-year to approximately $530,000 in the third quarter of 2024

Amid the underlying growth, analysts on Wall Street rate the stock as a Buy with an average price target of $18, implying 97.37% upside potential from current levels.

5. Ring Energy, Inc. (NYSE:REI)

Market Cap as Of October 29: $305.19 Million

Stock Upside Potential: 98.68%

Number of Hedge Fund Holders: 11

Ring Energy, Inc. (NYSE:REI) is one of the best micro-cap stocks to buy, according to analysts, to diversify an investment portfolio in the energy sector. Operating as an independent oil and natural gas company, it acquires, explores, and develops oil and natural gas properties. Amid the turmoil that has seen oil prices plunge from above $80 a barrel to lows of $68 a barrel, Ring Energy is still up by about 6% for the year.

Ring Energy, Inc. (NYSE:REI) controls 96,000 acres of land in the Permian Basin for oil and production. With about 129.8 million of oil reserves, it is one of the companies well positioned to profit as long as oil prices stabilize above the $50 a barrel level.

The company’s second-quarter results came in better than expected, with revenues surging to $99.14 million compared to $79.35 million a year ago. The increase was fuelled by a 2% increase in oil production, averaging 13,623 barrels per day, a 2% rise from Q1. The increase came despite oil prices averaging less than $80 a barrel. Likewise, its earnings per share totaled $0.12 a share, meeting consensus estimates.

Ring Energy, Inc. (NYSE:REI) generated an adjusted free cash flow of $21.4 million during the quarter that reached $37 million in the first half of the year, representing 60% year-over-year growth. Consequently, Ring Energy reduced its net debt by $15 million.

4. Performant Financial Corporation (NASDAQ:PFMT)

Market Cap as Of October 29: $298.72 Million

Stock Upside Potential: 107.25%

Number of Hedge Fund Holders: 7

Performant Financial Corporation (NASDAQ:PFMT) is an industrial company that provides technology-enabled audit, recovery, and analytics services. The leading healthcare payment integrity services provider has enjoyed double-digit solid year-over-year growth, driven by an increase in commercial client implementations and the continued ramp under our CMS RAC Region 2 contract.

Consequently, it delivered solid second-quarter results, with revenues increasing to $29.4 million compared to $25.5 million for the same quarter last year. Amid the revenue growth, the net loss shrunk to $2 million from a net loss of $3.2 million in the prior year. Performant Financial Corporation (NASDAQ:PFMT) is one of the best micro-cap stocks to buy, according to analysts, as it continues to fuel growth with commercial implementation programs.

In the second quarter, the company implemented 20 commercial programs expected to contribute approximately $9 million in revenue at an annualized steady rate. Initiatives to drive efficiency and productivity are progressing as planned, with positive early results. Likewise, management remains committed to delivering innovative solutions and long-term value to clients and stakeholders.

Consequently, analysts on Wall Street maintain a Buy rating on Performant Financial Corporation (NASDAQ:PFMT) with an average price target of $8, implying a 107.25% upside potential from current levels.

3. Industrial Logistics Properties Trust (NASDAQ:ILPT)

Market Cap as Of October 29: $260.63 Million

Stock Upside Potential: 157.07%

Number of Hedge Fund Holders: 18

Industrial Logistics Properties Trust (NASDAQ:ILPT) is a real estate investment trust that owns and leases high-quality distribution and logistics properties. It is one of the companies well positioned to benefit as macroeconomics improves owing to lower interest rates after a downturn in the real estate sector due to high interest rates.

In addition, management is setting the company up for future growth by focusing on tenant retention, maximizing mark-to-market rent growth opportunities, and managing operating expenses. The efforts are already paying off as Industrial Logistics Properties Trust (NASDAQ:ILPT) executed 628,000 square feet of new and renewal leases at weighted average rental rates that were 15.8% higher than prior rental rates for the same space.

Cash flows remained stable in the second quarter at 77% annualized rental revenues. While occupancy in the company’s properties dropped by 3.6% in the second quarter, they stayed at highs of 95.4%. Analysts on Wall Street remain optimistic about the REIT’s prospects as sentiments in the real estate sector improve. Consequently, they maintain a Buy rating on Industrial Logistics Properties Trust (NASDAQ:ILPT) with an average price target of $10, which implies a 157.07% upside potential.

2. Stoneridge, Inc. (NYSE:SRI)

Market Cap as Of October 29: $265.98 Million

Stock Upside Potential: 165.90%

Number of Hedge Fund Holders: 13

Stoneridge, Inc. (NYSE:SRI) designs and manufactures engineered electrical and electronic systems, components, and modules for the automotive, commercial, off-highway, motorcycle, and agricultural vehicle markets. While the company has lost significant market value year to date, management remains focused on improving the fundamentals, which should lead to significant margin improvements and outperformance relative to expectations.

Stoneridge, Inc. (NYSE:SRI) delivered solid second-quarter results driven by continued material cost reductions and improved operational excellence. Efforts to reduce material costs and control operating costs resulted in a 250 basis point improvement in gross margin and a 210 basis point improvement in adjusted operating margin over the first quarter. Gross profit in the quarter was up by 2.5% to $53.7 million, with operating income increasing by 2.1% to $5.4 million.

While focusing on operational performance improvement, Stoneridge, Inc. (NYSE:SRI) remains focused on the flawless execution of its program launches that should drive strong growth. The long-term outlook remains solid as the company ships its first MirrorEye OEM systems to Volvo to launch its FH Aero model in Europe. Additionally, according to analysts, it remains one of the best micro-cap stocks to buy, as its robust backlog continues to drive continued long-term growth.

Furthermore, Stoneridge, Inc. (NYSE:SRI) announced a strategic alliance with Volvo Bus to provide digital solutions and AI-powered connected services. Additionally, Stoneridge’s dedication to future expansion is demonstrated by its ongoing investments in cutting-edge software and AI capabilities.

Stoneridge, Inc. (NYSE:SRI) is currently rated as a Strong Buy on Wall Street with an average price target of $24.25, implying 165.90% upside potential.

1. Gold Royalty Corp. (NYSE:GROY)

Market Cap as Of October 29: $251.92 Million

Stock Upside Potential: 182.88%

Number of Hedge Fund Holders: 14

Gold Royalty Corp. (NYSE:GROY) is a basic materials stock specializing in providing financing solutions to the metals and mining industry. It focuses on acquiring royalties, streams, and similar interests at varying stages of the mine life cycle to build a portfolio offering near-medium-, and longer-term returns for its investors.

The company offers investors exposure to the gold market without the typical mining risks or operating expenses by purchasing royalties, streams, and interests at different mine stages. Its strategic approach positions it as a unique player in the mining finance sector by guaranteeing a mix of short-medium and long-term gains.

Compared to Q3 2023, Gold Royalty Corp. (NYSE:GROY) reported notable growth in Q3 2024, with total revenue, land agreement proceeds, and interest rising by 90% to $2.6 million. In 2024, the company’s nine-month revenues reached a record $9.0 million, a 130% increase from the previous year. Cash-flowing royalties from the Canadian Coaming, Borborema, Côté, and Malartic mines drove strong performance.

By reaching a record daily throughput of 40,900 tpd, 14% above nameplate capacity, the Côté Gold Mine has continued its successful ramp-up. Additionally, as the asset ramps up to reach nameplate capacity by the end of the year and the first copper revenue is delivered, the company anticipates receiving its first revenue from its copper stream over the Vares Mine in the fourth quarter. Gold Royalty Corp. (NYSE:GROY) is, therefore, still on course to meet its previously stated goal of 6,500 to 7,000 GEOs in 2024, which is equivalent to roughly $13 million to $14 million in anticipated Total Revenue, Land Agreement Proceeds, and Interest.

Given the solid financial and operating results, analysts on Wall Street have an average Buy rating on the stock with an average price target of $4.13, implying 182.88% upside potential.

While we acknowledge the growth potential of GROY, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GROY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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