It may sound counterintuitive but if you want big gains, you have to think small, as in small-cap stocks. Here, the idea is to trade predictability for maximum profit potential.
To be sure, the aforementioned elements generally feature a counterbalancing framework. For example, the companies that feature the greatest magnitude of predictability are the established, large-capitalization businesses. However, you’re not going to get much profit potential because everybody expects them to perform consistently.
On the other hand, small-cap stocks are wildly unpredictable. But you need this volatility to extract the biggest upside potential. If that sounds like an attractive gameplan, these lesser-known ideas may be right for you.
CECO Environmental (CECO)
Falling under the industrial sector, CECO Environmental (NASDAQ:CECO) conducts business in the pollution and treatment control space. Per its public profile, the company offers solutions in industrial air quality, industrial water treatment and energy transition protocols worldwide. Since the start of the year, CECO gained more than 18% of its equity value.
Fundamentally, it’s no surprise that CECO has performed so well in 2024. Politically and ideologically, the narrative has shifted toward environmental protection. Notably, analysts rate CECO a unanimous strong buy. Overall, the average price target lands at $26.80, implying over 13% upside potential. The high-side estimate lands at $30.
Last year, CECO enjoyed a solid performance, printing a positive earnings surprise of 12.5%. Its best result came in the third quarter when it generated earnings per share of 22 cents against an expected target of 18 cents.
For fiscal 2024, experts anticipate revenue of $601.14 million. That’s up over 10% from last year’s tally of $544.85 million. Therefore, it’s one of the small-cap stocks to consider.
VAALCO Energy (EGY)
An independent hydrocarbon energy specialist, VAALCO Energy (NYSE:EGY) focuses on the acquisition, exploration, development and production of crude oil, natural gas and natural gas liquids. It operates in multiple countries, including Gabon, Egypt, Equatorial Guinea and Canada. Since the start of the year, EGY gained almost 60% of its equity value. It could be on for even more gains.
Right now, analysts are pegging EGY as a unanimous strong buy. It’s not a mistake in my view. With the geopolitical flashpoint in Europe likely to worsen before it gets better, hydrocarbon supplies to Western nations may be limited. Since these countries represent the biggest economies in the world, demand will rise against artificially falling supply. Investors just need to do the math.
To be sure, Vaalco performed poorly in 2023. For example, the average quarterly surprise between Q1 and Q3 came out to 43.4% below breakeven. And analysts on paper anticipate 2024 revenue to reach $430.27 million, down 5.4% from last year’s print.
In my opinion, the projections will be revised upward eventually given the geopolitical realities. EGY is therefore one of the possible small-cap stocks to buy.
ACM Research (ACMR)
Listed under the technology sphere, ACM Research (NASDAQ:ACMR) operates in the semiconductor equipment and materials subcategory. Per its corporate profile, ACM develops, manufactures and sells single-wafer wet cleaning equipment for enhancing the manufacturing process and yield for integrated chips worldwide. Since the start of the year, ACMR stock gained nearly 72% of its equity value.
Just because it already enjoyed a robust performance doesn’t mean it can’t deliver even more for prospective investors. Currently, analysts rate shares a unanimous strong buy with a $37.75 average price target. That implies almost 18% upside potential.
Much of the excitement centers on ACM’s strong financial performance. In Q4 last year, the company posted EPS of 43 cents against an expected print of 17 cents. As the semiconductor sector rises due to increased demand, ACM’s critical services will likely attract the spotlight.
Experts see fiscal 2024 revenue hitting $701.7 million, up nearly 26% from last year. This is easily one of the top small-cap stocks to buy.
PAR Technology (PAR)
Another tech player, PAR Technology (NYSE:PAR) focuses on the application software realm. With its subsidiaries, Par provides omnichannel cloud-based hardware and software solutions to the restaurant and retail industries worldwide. Granted, this is a bit of a riskier idea among small-cap stocks. Reflecting this dynamic, PAR stock gained less than 2% since the beginning of this year.
Still, let’s look at the fundamentals. According to Deloitte, while the revenge travel phenomenon may be fading, consumers are still prioritizing travel. If so, that means restaurants – while hard hit right now – could eventually enjoy downwind benefits. Because of this dynamic, I don’t find PAR stock’s moderate buy assessment anywhere near shocking.
In fairness, Par suffered some ugly financial numbers. In the first half of last year, its quarterly surprise averaged 44.1% below breakeven. And in Q4, the company posted a loss of 33 cents against expected red ink of 26 cents per share.
However, looking to fiscal 2024, experts anticipate revenue of $480.44 million. That’s up almost 16% from last year’s result of $415.82 million. For patient investors, PAR could be one of the small-cap stocks to buy.
Applied Optoelectronics (AAOI)
Working under the communication equipment category, Applied Optoelectronics (NASDAQ:AAOI) designs, manufactures and sells fiber-optic networking products in the U.S., Taiwan and China. According to its public profile, Applied offers myriad products, including optical modules, optical filters and laser components, among many others. However, it’s one of the riskiest ideas among small-cap stocks, suffering a 33% year-to-date loss.
Nevertheless, that’s not the entire story. In the past 52 weeks, AAOI stock gained slightly over 485% of equity value. As a result, some corrective action was arguably inevitable. After this bout of red ink diminishes, contrarians may want to jump back into the trade. Analysts are looking at shares as a moderate buy with an $18 price target. That implies nearly 44% upside potential.
One reason for having confidence in Applied is its quarterly print. In Q4 last year, the company posted EPS of four cents. The expected target? A breakeven quarter. For fiscal 2024, analysts are looking for a loss per share of nine cents on revenue of $287.93 million.
Last year, the top line landed at $217.65 million, meaning the expectation calls for 32.3% growth.
Couchbase (BASE)
Conducting business in the software infrastructure arena, Couchbase (NASDAQ:BASE) provides a cloud database platform for enterprise applications in the U.S. and internationally. According to its corporate profile, the company’s database works in multiple configurations, ranging from cloud to multi- or hybrid-cloud to on-premise environments to the edge. With so many enterprises migrating to the cloud, BASE stock could be an intriguing upside idea.
Another reason to consider BASE as one of the top small-cap stocks is the underlying financial performance. Last fiscal year, the company’s average quarterly surprise came out to 37.75%. Its best print was Q4, where Couchbase delivered a loss of six cents per share, better than the projected loss of 14 cents.
For the current fiscal year (2025), experts are looking for sales of $205.63 million. If so, we’re talking about growth of 14.2% from 2023’s tally of $180.04 million. And in fiscal 2026, they anticipate a top line of $241.3 million, implying 17.3% year-over-year growth. If you’re into high potential small-cap stocks, BASE should be on your radar.
Ligand Pharmaceuticals (LGND)
Operating under the healthcare umbrella, Ligand Pharmaceuticals (NASDAQ:LGND) focuses on biotechnology. Per its corporate profile, Ligand engages in the development and licensing of biopharmaceutical assets worldwide. Its commercial programs include Kyprolis and Evomela, which are used to treat multiple myeloma and Rylaze, a therapeutic for acute lymphoblastic leukemia.
It’s easy to support biotechs like LGND stock thanks to their lifesaving potential. However, the space is also volatile and unpredictable. For Ligand, its shares have only gained about 8% so far this year. Over the past 52 weeks, it has gained less than 7%. That just goes to show you how wild the price action has been.
Nevertheless, investors will likely appreciate the underlying financial performance. In fiscal 2023, the company’s average positive earnings surprise came out to 113.6%. Its best print was Q1, when it posted EPS of $2.28 against an expected target of 89 cents.
For fiscal 2024, experts are looking for modest growth to $137.68 million. That’s up 4.8% from last year. However, analysts also rate shares a unanimous strong buy with a $116.33 price target, implying over 49% growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
