In this article, we discuss 11 high-growth micro-cap stocks to buy. To skip the detailed analysis and past performance of micro-cap stocks, go directly to the 5 High Growth Micro-cap Stocks to Buy.
Shares of small companies with market capitalization usually between $50 to $300 million are considered micro-cap stocks. The risk in these investments is quite high because of high volatility and low liquidity. Due to a lack of reliable publicly available information, these stocks are also more exposed to fraudulent schemes. On the other hand, if researched properly, these stocks have the potential for massive gains, much higher than companies with larger capitalization.
While micro-cap stocks have the potential for great returns, the quality ones usually miss the public eye. Their lack of liquidity keeps the buyer interest low, which keeps them out of regular media coverage. During specified periods, micro-cap stocks have also outperformed the larger companies over the long term. A Boston Partners report reveals that between early 1995 and June 2020, the CRSP Equal Weighted Microcap Index gained 740%, outperforming the US Private Equity Index growth of 716% and the S&P 500’s 255% returns.
During this year’s artificial intelligence rally, investors and media have had their eyes jammed on the Magnificent 7. Although the returns were massive, there were also some hidden gems in the micro to small-cap stocks that took advantage of the rally and gained nearly the same as the mega-caps. The micro-cap stock Innodata Inc. (NASDAQ:INOD) has a market cap of over $246 million at the time of writing on December 22. The company uses AI to optimize data flows and operations of its client's business. Its stock is 180.39% higher year-to-date on December 22. Similarly, other AI-related small-cap stocks like BigBear.ai Holdings, Inc. (NYSE:BBAI) and Rekor Systems, Inc. (NASDAQ:REKR) have gained 153.42% and 104.73%, respectively.
Former JPMorgan’s chief equity strategist and Fundstrat Global Advisors’ co-founder, Tom Lee, sees opportunities in small to micro-cap stocks in the coming year. A year ago, Lee predicted that the S&P 500 would be between 4,750 and 4,800 by the end of 2023. In a CNBC interview, he said:
“Well, I think investors in the next 12 months are gonna start to say “What things get fixed if the Fed just stops being so aggressive on rates?[...] and it makes a lot of sense that asset quality gets better if rates fall for the banks, commercial real estate comes back, small caps which are highly levered or higher levered really benefit. So, to me, you know in the next 12 months it seems like the small caps can be up 50%.”
Lee holds the belief that the US 10-year Treasury rate may likely remain below 4%, making small and micro caps more attractive. He further mentioned that, when assessed on a price-to-book basis, these stocks are currently trading at levels comparable to those observed in 1999 relative to the S&P 500. That began a 12-year outperformance cycle for the small-cap stocks. Moreover, Concordia University research suggests that small-cap and micro-cap stocks outperform the market during economic recoveries.
Between 1983 and 2015, the Fed implemented six interest rate hikes. According to a report from Perritt Capital Management, small and micro-cap stocks, on average, experienced a decline of over 3% in the initial three months of rate hikes. However, the performance of these stocks rebounded over the long term. Average returns reached 16.62% after 12 months, 11.76% after 18 months, and 32.61% after 36 months. Despite a short-term decline, small and micro-cap stocks demonstrated positive returns in the aftermath of the Fed’s rate hikes. Keeping that in mind, some of the best high-growth micro-cap stocks to buy are Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), Xeris Biopharma Holdings, Inc. (NASDAQ:XERS), and NuScale Power Corporation (NYSE:SMR).
11 High Growth Micro-cap Stocks to Buy
Our Methodology
For this article, we identified nearly 150 stocks with market capitalization between $50 million and $300 million and with the latest quarterly revenue growth above 30%. Next, we selected the best stocks based on their hedge fund sentiment. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm. The stocks are listed in ascending order of the number of their hedge fund investors. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Redwire Corporation (NYSE:RDW) is a Florida-based company that is engaged in the development and manufacturing of mission-critical space solutions and high-reliability components for space infrastructure.
Redwire Corporation (NYSE:RDW) was covered by 2 Wall Street analysts over the last three months, and all maintained a Buy rating on the stock. The average price target of $5 represented an upside of 70.07% as of the December 22 market close.
Redwire Corporation (NYSE:RDW) posted its GAAP EPS of -$0.14 in the third quarter, which was in line with the prior month’s EPS. In the quarter, the revenue rose by 68.3% year-over-year (YoY) to $62.6 million, topping the estimates by $2.25 million.
Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), Xeris Biopharma Holdings, Inc. (NASDAQ:XERS), and NuScale Power Corporation (NYSE:SMR) are some of the best high-growth micro-cap stocks to buy besides Redwire Corporation (NYSE:RDW).
Blink Charging Co. (NASDAQ:BLNK) is a Florida-based owner, operator, and provider of electric vehicle (EV) charging equipment and networked EV charging services.
In the third quarter, Blink Charging Co. (NASDAQ:BLNK) announced its third-quarter earnings result with a non-GAAP EPS of -$0.16, which beat the analysts’ estimates by $0.21. The revenue of $43.38 million jumped 151.5% YoY, surpassing the estimates by $12.33 million.
According to Insider Monkey’s database that tracks 910 elite hedge funds, 7 hedge funds had investments in Blink Charging Co. (NASDAQ:BLNK)’s stock in Q3, compared to 5 funds in the previous quarter. Paul Marshall And Ian Wace’s Marshall Wace LLP owned 605,100 company shares worth $1.85 million, making it the most significant investor in the company.
On November 29, Blink Charging Co. (NASDAQ:BLNK) announced that Mack Trucks selected it as a full-service EV infrastructure provider via Mack’s Vendor Direct Ship and Turnkey Solutions program.
Great Elm Group, Inc. (NASDAQ:GEG) is a Nevada-based alternative asset management company.
On December 12, Great Elm Group, Inc. (NASDAQ:GEG) announced a special dividend of $0.10. It is payable by January 12 to the shareholders of record on December 29.
On November 8, Great Elm Group, Inc. (NASDAQ:GEG) posted its Q1 GAAP EPS of $0.08, and its revenue rose by 78% to $3.3 million.
7 hedge funds were bullish on Great Elm Group, Inc. (NASDAQ:GEG)’s stock in the third quarter. With 3.97 million shares worth $8.5 million, Texas-based Becker Drapkin Management was the biggest stakeholder in the company.
ESS Tech, Inc. (NYSE:GWH) is an Oregon-based company that provides iron flow batteries for long-duration storage purposes.
In the third quarter, ESS Tech, Inc. (NYSE:GWH) announced its third-quarter earnings result with a GAAP EPS of -$0.11, which surpassed the estimates by $0.03. In the quarter, the revenue grew by 710.5% YoY to $1.54 million.
Of the 5 Wall Street analysts that covered ESS Tech, Inc. (NYSE:GWH), 4 kept a Buy rating on the stock. As of the December 22 market close, the average price target of $2.95 represented an upside of 158.77%.
Gevo, Inc. (NASDAQ:GEVO) is a Colorado-based company that provides renewable chemicals and biofuels.
Gevo, Inc. (NASDAQ:GEVO) was covered by 3 Wall Street analysts over the last three months, and 2 maintained a Buy rating on the stock. The average price target of $6.07 had an upside of 414.41% as of the December 22 market close.
On November 27, Stifel lowered the price target on Gevo, Inc. (NASDAQ:GEVO)’s stock to $2.20 from $3.60 and maintained a Buy rating. The adjustment in the price target came after the firm updated its model in light of the third-quarter earnings result and updated guidance.
On November 13, Gevo, Inc. (NASDAQ:GEVO) posted its third-quarter earnings result with a GAAP EPS of -$0.07 and revenue that grew by 1361.3% YoY to $4.53 million.
Rekor Systems, Inc. (NASDAQ:REKR) is a Maryland-based company that develops and provides real-time roadway intelligence solutions using AI and machine learning.
In the third quarter, Rekor Systems, Inc. (NASDAQ:REKR) announced its earnings result with a GAAP EPS of -$0.16, and the revenue grew 33.8% YoY to $9.1 million.
According to Insider Monkey’s database, 9 hedge funds were bullish on Rekor Systems, Inc. (NASDAQ:REKR)’s stock in the third quarter at a combined stake value of $45.461 million, up from 5 funds at a total stake value of $15.192 million in the previous quarter.
Rekor Systems, Inc. (NASDAQ:REKR) is one of the best high-growth micro-cap stocks to buy along with Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT), Xeris Biopharma Holdings, Inc. (NASDAQ:XERS), and NuScale Power Corporation (NYSE:SMR).
