We recently published a list of 10 Best Small-Cap Growth Stocks to Buy Now. In this article, we are going to take a look at where NextNav Inc. (NASDAQ:NN) stands against other best small-cap growth stocks to buy now.

Are Small-Cap Stocks Poised for Growth?

On November 4, 2024, Nick Sheridan, Portfolio Manager at Janus Henderson released a report on small-cap stocks exploring how these stocks offer unique growth and diversification opportunities. Sheridan highlighted that maintaining visibility amidst the dominance of mega-cap tech stocks has been a challenge for small-cap stocks. Historically, small caps have been overshadowed by larger companies, which have captured investor attention with themes like artificial intelligence and have seen ever-higher multiples as a result. However, Sheridan notes that this is not a new phenomenon. Small caps have consistently delivered higher earnings growth than large caps over time, therefore, making them an attractive option for investors seeking growth and diversification.

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In recent years, mega-cap tech stocks have been the driving force behind the stock market, but cracks have begun to appear in their performance, leading investors to seek value elsewhere. On the other hand, as interest rates are expected to decrease, small caps are poised to benefit, as they historically perform well in such environments. Sheridan highlighted that the key to small-cap outperformance lies in their ability to grow earnings more rapidly than large-caps, which struggle to achieve significant growth due to their size and market penetration. Small caps can expand into new markets, acquire new clients, or broaden their product range more easily than larger companies.

Moreover, small caps also serve as a diversification tool for investors. They often operate in different sectors, such as industrials and materials, and are more focused on local markets, providing exposure to structural trends like de-globalization. Sheridan noted that despite their potential, small caps remain under-researched and undervalued, offering opportunities for investors willing to conduct thorough research to identify quality growth companies. In addition, the persistent merger and acquisition activity, where larger companies acquire smaller ones at a premium, further supports the case for investing in small caps. According to Bloomberg, 95% of M&A deals involve a small-cap target, thereby adding substance to Sheridan’s argument. Lastly, Sheridan concluded by mentioning that small caps remain an undiscovered territory for many investors, requiring more effort to uncover hidden gems but offering substantial rewards for those who do.

Our Methodology

To curate the list of the 10 best small-cap growth stocks to buy now, we used the Finviz stock screener, Seeking Alpha, and Insider Monkey’s Q4 2024 hedge funds database. Using the screener we compiled an initial list of small-cap growth stocks. Next, we used Seeking Alpha to shortlist stocks that have grown more than 30% during the past 3 years. Lastly, we ranked the stocks in ascending order based on the number of hedge fund holders sourced from Insider Monkey’s database.

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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

NextNav Inc. (NASDAQ:NN)

3-Year Sales Growth: 80.14%

Number of Hedge Fund Holders: 22

NextNav Inc. (NASDAQ:NN) specializes in providing advanced positioning, navigation, and timing solutions. These solutions aim to improve the limitations of traditional GPS systems, which rely on satellites. The company offers two main services including Pinnacle, which is a vertical positioning system that helps devices accurately determine their altitude. It works with smartphones, IoT devices, and other equipment that have a barometric pressure sensor. Moreover, it also provides TerraPoiNT, a system that uses a terrestrial network to provide more reliable and secure location services compared to GPS.

NextNav Inc. (NASDAQ:NN) is actively pursuing its proposal to reconfigure the lower 900 MHz band to create a terrestrial backup and complement to GPS. It has submitted formal comments to the FCC, highlighting the lack of a wide-scale terrestrial PNT system and emphasizing the importance of its proposal. Laughing Water Capital in its Q4 2024 investor letter stated the company was the largest contributor in their portfolio in terms of returns. The fund noted that the commentary of FCC Chair Brendan Carr and other Commissioners suggests the chances for approval of the proposal are high as terrestrial GPS is a National Security priority.

During the fiscal third quarter of 2024, NextNav Inc. (NASDAQ:NN) delivered $1.6 million in revenue, up from $1.0 million in Q3 2023. Management attributed the growth to being driven by higher service revenue from contracts with government and commercial customers. It is one of the best small-cap growth stocks to buy now.

Laughing Water Capital stated the following regarding NextNav Inc. (NASDAQ:NN) in its Q4 2024 investor letter:

“NextNav Inc. (NASDAQ:NN) – Nextnav, our next-gen GPS / wireless spectrum investment, was our largest contributor to 2024 returns, and remains our largest position. At this time we are in a holding pattern with Nextnav as we wait for updates from the Federal Communications Commission (FCC) on the Company’s petition to update the rules that govern the 900 MHz spectrum band in a way that will allow for the creation of a terrestrial GPS system in the U.S., as well as ~15 MHz of 5G spectrum.

There is some uncertainty surrounding this process, but commentary from incoming FCC Chair Brendan Carr and other Commissioners suggests the chances for approval are favorable as terrestrial GPS is a National Security priority, and refilling the spectrum pipeline is an FCC priority.

The stock has been under heavy pressure in recent weeks as two different private equity funds – one a 2005 vintage, and the other a 2012 vintage – appear to have reached the end of their fund lives and are thus aggressively selling shares. I suspect this overhang will clear with time…” (Click here to read the full text)

Overall, NN ranks 6th on our list of  best small-cap growth stocks to buy now. While we acknowledge the potential of NN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.