While common sense dictates that a healthy portfolio should be geared toward large-capitalization equities, the best small-cap stocks to buy offer something that big boys usually can’t: a favorable “ratio.” Allow me to explain. Basically, with large caps, you have to put in a lot of money to (hopefully) accrue a lot of money. These entities represent low-risk, low-reward affairs. In other words, investors pay for the underlying predictability with rather pedestrian return potential.
On the flip side, entities under the label small-cap stocks 2023 enjoy a ratio aligned to the bargain hunter. In exchange for modest upfront cash, their return potential jumps considerably compared to the staid blue chips. Of course, you pay for the upside by accepting greater risk. But if you’re okay with this framework, these small-cap growth stocks may be just right for you.
Small-Cap Stocks to Buy: MasterCraft Boat (MCFT)
Headquartered in Vonore, Tennessee, MasterCraft Boat (NASDAQ:MCFT) is a manufacturer of sports boats. Immediately, MasterCraft presents a question mark regarding inclusion on a list of the best small-cap stocks to buy. With economic anxieties rising, buying a motor vessel isn’t exactly smart. However, because the rich continued to get richer because of the Covid-19 crisis, MCFT could be counterintuitively intriguing.
Since the start of the year, MCFT gained nearly 14% of its equity value. In the trailing one-year period, it popped up over 16%. Financially, the market prices MCFT at a trailing multiple of 9.55. As a discount to earnings, MasterCraft ranks better than 72.12% of its peers.
Operationally, the company prints a three-year revenue growth rate of 15.2%, ranked above 81.55% of its rivals. Also, its EBITDA growth rate during the aforementioned period hit 30.9%, better than 84.71%. Finally, Wall Street analysts peg MCFT as a consensus moderate buy. Their average price target is $37.60, implying 27% upside potential.
Small-Cap Stocks to Buy: RCM Technologies (RCMT)
Based in New Jersey, RCM Technologies (NASDAQ:RCMT) provides scalable healthcare solutions to meet its enterprise-level clients’ staffing needs. The company operates under three units: engineering, life sciences and information technology, and healthcare. At the moment, RCM carries a market cap of $102.6 million. Given its mobility potential in the charts, RCMT ranks among the small-cap stocks to buy.
Since the Jan. opener, RCMT slipped almost 2%. In the past 365 days, it fell more than 38%. Still, on paper, RCMT appears discounted. Right now, the market prices RCMT at a trailing multiple of 6.15. As a discount to earnings, the company ranks better than 73.3% of the field. Also, RCMT trades at 4.69 times free cash flow. In contrast, the sector median stat is 11.29 times.
Operationally, RCM carries a three-year revenue growth rate of 22.8%, above 88% of its peers. Additionally, its EBITDA growth rate during the same period came out to 67.9%, above 91.44%. Lastly, B. Riley Financial’s Alex Rygiel pegs RCMT a buy. The expert anticipates a $17 price target, implying over 38% upside potential.
Small-Cap Stocks to Buy: Hibbett Sports (HIBB)
Headquartered in Birmingham, Alabama, Hibbett Sports (NASDAQ:HIBB) bills itself as a leading athletic-inspired fashion retailer. To be upfront, consumer discretionary names face significant downside risks due to broader economic pressures such as layoffs. On the other hand, Hibbett appears to resonate with young consumers; hence, its support among Wall Street analysts, which I’ll detail later.
In addition, might make a case for the best small-cap stocks to buy based on their value proposition. Presently, the market prices HIBB at a trailing multiple of 5.54. As a discount to earnings, Hibbett ranks better than 91.56% of companies in the cyclical retail segment. Also, it trades at 0.41 times sales. In contrast, the sector median stat pings at 0.65 times.
Operationally, its three-year revenue growth rate impresses at 24.8%, above 86.55% of its peers. Thus, it makes a strong case for small-cap growth stocks. As referenced earlier, analysts peg HIBB as a consensus strong buy, breaking down as five buys and one hold. On average, their price target lands at $79.83, implying over 50% upside potential.
Navitas Semiconductor (NVTS)
Hailing from Torrance, California, Navitas Semiconductor (NASDAQ:NVTS) on its website claims to be the only pure-play, next-generation power semiconductor company. Further, based on its underlying technology, Navitas’ superior materials facilitate higher speeds, greater energy savings, and significantly reduced weight, among other attributes. Therefore, it’s a potentially viable example among small-cap stock picks.
To be sure, investors believe in the underlying narrative, sending NVTS stock up nearly 57% since the January opener. However, it still offers a relative discount in the charts due to losing over 27% in the trailing year. As well, shares trade hands at 9.59 times trailing earnings. In contrast, the sector median stands at 20.2 times. Moreover, Navitas enjoys a stable balance sheet, particularly with a high cash-to-debt ratio of 16.8. Also, its equity-to-asset ratio pings at 0.9, above 92.54% of its peers.
Turning to Wall Street, analysts peg NVTS as a unanimous strong buy. Their average price target hits $9, implying 59% upside potential. Thus, it might be a worthy example of small-cap stocks to buy.
An intriguing enterprise, Envela (NYSEAMERICAN:ELA) engages in various business activities. However, it may be best known for its recommerce ethos. Derived from the term reverse commerce, recommerce involves selling previously owned goods. Aligned with both money-saving endeavors as well as sustainability protocols, Envela represents one of the fun small-cap stocks to buy.
Plus, Gurufocus points out that ELA is modestly undervalued, potentially making it an ideal play among small-cap stock picks. Notably, the market prices ELA at a trailing multiple of 10.86. As a discount to earnings, Envela ranks better than 70.48% of companies in the cyclical retail space. Also, its price-earnings-growth ratio sits at a subterranean 0.17 times. In contrast, the sector median stat is 1.18 times.
Operationally, ELA makes good as one of the best small-cap stocks to buy with a three-year revenue growth rate of 30.6%. This beats 89.15% of the competition. Also, its net margin is robust at 8.59%. Looking to the Street, Lake Street’s Mark Argento pegs ELA a buy. The expert forecasts a price target of $11, implying almost 75% upside potential.
Hudson Technologies (HDSN)
Based in Pearl River, New York, Hudson Technologies (NASDAQ:HDSN) focuses on its ethos: providing products and services that ultimately help reduce greenhouse gas emissions, increase energy efficiency, and promote sustainability. It addresses various needs, including emergency cooling system repairs and carbon trading offsets. Unfortunately, investors don’t appreciate the environmental, social, and governance angle, sending HDSN down over 22% since the Jan. opener.
However, contrarian investors of small-cap stocks to buy should give Hudson another look. First, the market prices HDSN at a forward multiple of 6.13. As a discount to projected earnings, Hudson ranks better than 94.7% of companies in the chemicals industry. Also, it trades at 6.06 times FCF, lower than the sector median of 19.97 times.
Operationally, Hudson’s three-year revenue growth rate impresses at 22%, above 83.4% of its peers. Speaking of FCF, this metric’s growth rate during the aforementioned period is 17.7%, above 69.43%. Lastly, analysts peg HDSN as a consensus moderate buy. Their average price target hits $14, implying over 84% upside potential.
Build-a-Bear Workshop (BBW)
A distinct if not unique company, Build-a-Bear Workshop (NYSE:BBW) is an American retailer that sells teddy bears and other stuffed animals and characters. Per its public profile, customers go through an interactive process in which the stuffed animal of their choice is assembled and tailored to their own preferences during their visit to the store. Though enticing, since the Jan. opener, BBW slipped over 10%.
For those that don’t mind some risk with their small-cap stocks to buy, BBW could tempt some contrarians. Notably, the market prices shares at a forward multiple of 6.32, ranked better than 92.89% of companies in the cyclical retail space. Also, BBW trades at 9.66 times FCF, ranked better than 60.48%.
On the operational front, Build-a-Bear commands a three-year revenue growth rate of 10.2%, much higher than the sector median of 2.7%. Also, its EBITDA growth rate during the same period stands at an impressive 67.7%. On a final note, Small Cap Consumer Research’s Eric Beder pegs BBW a buy. The expert projects a price target of $41, implying nearly 89% upside potential.
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.