Let's talk a little bit about growth and potential. The two are not always the same, but they are both essential to successful investing. After all, the goal of all equity investments is to achieve growth – and that means finding stocks with the highest potential.
It's normal to be attracted to the big names making headlines; they have huge market valuations and have made their early investors very happy. But there is an unfortunate truth in the markets, based on the iron rules of mathematics, that the bigger a company gets, the less likely it is to make big returns. A $ 200 million company is much more likely to double in value than a $ 200 billion giant.
And this brings us to small cap stocks. For investors looking for the best combination of high growth potential and low entry costs, the small caps may be the ticket.
We used the Investing Insights platform to find several that fit a profile: a market capitalization of less than $ 400 million and a share price of less than $ 10. In fact, these small caps -tickers score a smart score of 'Perfect 10'. The platform gives each stock a one-digit score, based on the sum of 6 separate factors. The factors used are known to correlate with future overperformance; when they line up, this is a strong indicator for buyers to be aware of. Let's take a closer look.
PowerFleet, Inc. ( PWFL )
The Internet of Things is changing many industries, from factory floors to warehouses to vehicle fleets. PowerFleet (NASDAQ :), the first small-cap stocks we are looking at, applies IoT and M2M technology to the security, control, tracking and management of high-value assets including tractors, containers, industrial trucks and freight, vehicle and truck fleets.
PowerFleet sales in the first quarter were consistent with the previous quarter and included an improvement in revenues. On the top line, reported revenue of $ 29 million was only 1.3% lower than the fourth quarter. The reported earnings per share loss of 9 cents was a 25% improvement over the 12 cent loss reported in the previous quarter. Year-on-year earnings per share improved by 40%.
Earlier this month, PowerFleet scored two major new contracts. On May 10, the company announced a four-year contract with the Israel Police to implement a fleet management system and driver solutions for more than 7,500 vehicles of 61 different types. The contract includes an option for a 4-year extension. Two days later, PowerFleet announced a smaller deal with Alabama-based White Oak Transportation to provide tracking services for the transportation company's fleet of 850 vehicles, most notably its freight trailers.
With regard to PowerFleet for Canaccord, five-star analyst Michael Walkley sees a clear path for the company's continued growth.
“With more than 600,000 subscribers, PowerFleet has the scale and international footprint to compete for global tenders against leading competitors for fleet and asset tracking. For fleet management, PowerFleet is one of the few truly end-to-end solutions on the market, ranging from in-cab, refrigerated trailers, dry vans and containers, ”said Walkley.
The analyst added, “We believe PowerFleet has a strong product portfolio and industry-leading solutions platform to increase its market share. This strength is demonstrated by its extensive global customer base … We believe PowerFleet has the leadership team to execute its growth strategy and anticipate recovering sales and growing margins as the global economy recovers. "
To this end, Walkley rates PWFL as a Buy, and its $ 12 price target implies an 84% one-year rate increase.
Overall, the unanimous Strong Buy consensus rating here, based on 4 recent positive reviews, shows that Wall Street agrees with Walkley on this stock. The stock is trading at $ 6.51, and the $ 11.13 average price target indicates a 71% potential rise for the next 12 months. (See PWFL Stock Analysis)
AXT, Inc. ( AXTI )
AXT (NASDAQ 🙂 is a materials science company engaged in the supply chain for the semiconductor industry. AXT develops and manufactures the high performance, rare metal substrate wafers required in the construction of semiconductor chips and optoelectronic devices. AXT has offices in both California and China and remains close to Silicon Valley customers and Chinese commodities.
The company has a vital niche in the chip industry, and its sales and profits reflect that. In the first quarter of 2021, sales were $ 31.4 million, breaking the $ 30 million mark for the first time with a 51% year-on-year growth. Earnings per share reached 8 cents, a dramatic turnaround from the 1 cent loss reported in the same quarter a year ago.
Along with its first quarter results, AXT also announced its first deliveries of 8 inch diameter gallium arsenide (GaAs) substrates to a major customer. AXT has received "significant interest" from potential customers of GaAs products and predicts increasing demand as the products find more applications.
Analyst Richard Shannon, who covers this stock for Craig-Hallum, notes in particular the increasing demand for the company's products.
“The demand profile of InP (optics, health monitoring) and GaAs (5G, optics, 3DS, microLED) is as powerful as we can find in small-cap technology. With an improving customer base (Tier 1 driving much of the future growth), GM still set to grow, and valuation improvement potential from a STAR listing in mid-2022, investors have multiple ways to win in this stock, ”wrote Shannon.
Shannon's bullish comments support his Buy rating, and his $ 17 price target suggests a 90% growth potential in the year ahead.
The Wall Street reviews on AXTI split 3 to 1 in favor of Buys versus Holds, giving the stock the Strong Buy consensus rating. Shares in AXTI are selling for $ 8.95 each, and the $ 16 average target indicates a possible ~ 79% rise from that level. (See AXTI Stock Analysis)
CECO Environment ( CECE )
For the last stock on our list, we switch to the green economy, where CECO Environmental (NASDAQ 🙂 develops, supplies and installs air quality and fluid handling systems. Basically, the company is engaged in air pollution technology, a niche that has been in high demand since the 1970s. CECO provides know-how and systems in a wide variety of industries, including construction materials such as bricks, cement, steel and glass; and manufacturing, in the automotive, aerospace, pharmaceutical, chemical and fuel refining sectors.
In the company's most recent financial release, for 1Q21, revenues were $ 71.9 million, slightly less than the $ 80.5 million reported in the same quarter a year ago, while earnings per share declined from 10 cents per share a year ago to 3 cents. in the current report. On a more positive note, the company reported a year-over-year increase in bookings from $ 75.7 million to $ 92.1 million, and the work inventory of $ 203.1 million was 11% higher than a year ago.
A few days after the revenue announcement, CECO announced that it had won a large-scale contract with a major semiconductor chip manufacturer. The chip industry regularly works with a variety of rare metals and other polluting chemicals – and CECO's new contract includes scrubber and exhaust systems as well as recirculation pumps – items that the chip maker needs to meet or exceed environmental regulations.
As for the analyst community: H.C. Wainwright analyst Amit Dayal believes the company has a lot to offer and a bright future ahead.
“The company appears to be recovering from COVID-19 headwinds, with bookings increasing to $ 92.1 million during the quarter … The last time bookings were at or above this level was mid-2019 .. In the coming quarters, we expect improved revenues from Engineered Systems as broader energy markets improve. Management emphasized that the company's bidding proposal environment has improved, with an order pipeline of more than $ 2.0 billion, which we believe should support continued order improvement in the coming quarters, ”explained the five-star analyst.
Based on the above, CECE shares the daily rates with a Buy rating, and its $ 15 price target indicates confidence in a 100% rise for the coming year.
Again, we're looking at a stock with a unanimous Strong Buy consensus rating – it's based on three positive Wall Street reviews. The stock is selling for $ 7.50 and has an average price target of $ 12, indicating a 60% rise over 12 months. (See CECE Stock Analysis)
For more ideas for stocks trading at attractive valuations, visit Investing Insights .
