Micro-cap stocks have a market capitalization between $50 million and $300 million. A low market capitalization generally indicates an emerging business with high risk. Therefore, the beta factor for a micro-cap stock is higher than that of growth and penny stocks (that are not micro-caps).
Therefore, let me start cautiously: investors should consider limited exposure to these ideas. I would not shy away from 5% portfolio exposure to micro-cap stocks. The reason is that there are micro-caps that represent companies with promising growth potential. If the business gains traction, 10x to 50x returns are likely.
This column focuses on three micro-cap stocks representing businesses with average to good fundamentals to buy. If these companies continue to make the right business decisions, these stocks can quickly deliver multi-bagger returns. I am, therefore, focused on non-speculative ideas.
Yatra Online (YTRA)
Yatra Online (NASDAQ:YTRA) is an interesting pick from the micro-cap space. YTRA stock has declined by almost 30% in the last 12 months and looks deeply undervalued. As an overview, Yatra Online is an online travel company in India. Yatra is involved in air ticketing, hotel, package and other related services business.
The first point to note is that India is emerging as a big market for travel and tourism. It’s estimated that Indians could be the fourth largest global travel spenders by 2030, with travel spending predicted to hit $410 billion. Being among India’s well-known online travel companies, Yatra is well-positioned to benefit from this.
It’s worth noting that Yatra differentiates itself from the competition by being a leading player in the corporate travel segment. The company has 8,000 large corporate customers with an addressable employee base of over 7 million. At the same time, Yatra has plans to scale up the business to the consumer segment. Once this segment gains growth traction, the impact on overall revenue will likely be significant.
Blade Air Mobility (BLDE)
Blade Air Mobility (NASDAQ:BLDE) is another attractive micro-cap stock with a unique business. The company is involved in air transportation service alternatives to congested ground routes in the United States. Blade Air, however, does not own any aircraft or helicopters. The asset-light model with healthy growth makes the company attractive.
For 2023, Blade Air reported revenue of $225.2 million, which was higher by 54.1% yearly. With the business still nascent, I expect healthy growth to be sustained. At the same time, Blade Air Mobility has guided for positive adjusted EBITDA for the current year. I further expect continued margin improvement in the next few years on the back of operating leverage.
Regarding growth catalysts, the company’s organ transplant segment is a game-changer. The segment contributes to 56% of revenue and is the largest dedicated air transporter of human organs for transplant in the United States.
This segment has an adjusted EBITDA margin of 9%, while the passenger segment is yet to turn adjusted EBITDA positive. The impact on the overall margin will be significant if the organ transplant segment grows stably.
Standard Lithium (SLI)
Standard Lithium (NYSE:SLI) stock has plunged by 60% in the last 12 months. The reason is a significant correction in lithium prices. However, SLI stock is deeply undervalued considering the asset potential and a big reversal rally is impending.
To put things into perspective, Standard Lithium commands a market valuation of $205 million. The company’s Lanxess project has an after-tax net present value of $722 million. Further, the South West Arkansas asset has an after-tax NPV of $4.5 billion. These assets have a combined after-tax NPV of more than $5 billion. SLI stock is massively undervalued.
There are two catalysts for the stock trending higher — first, a sustained reversal in lithium price. Further, the company is finding partners to finance the game-changing South West Arkansas asset. The asset requires a development capital expenditure of $1.2 billion. With expectations of a lithium supply gap in the long term, I expect a strong reversal for the metal relatively soon.
On the date of publication, Faisal Humayun did not hold (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.
