Is It Ok To Invest In Small Cap Stocks In 2024?
The investment industry is changing rapidly. With new technological innovations, new companies are emerging – and old ones are extinct (remember Kodak?) Therefore, one of the best ways to understand the market’s future is what small cap stocks are.
Therefore, learning about all investment options is necessary if you are new to the investment game and wish to start investing. This includes learning more about investment options like good cash flow opportunities.
As such, read this post till the end. After reading this post, you will learn whether investing in small cap funds is okay. Moreover, you will also learn about the ten best small cap funds to invest in 2024!
What Are Small Cap Stocks?
Small cap stocks (short for small capitalization stocks) are shares that belong to smaller, rising businesses. Typically, these businesses have a market capitalization (current share price x outstanding shares) of around $250 million to $2.5 billion.
Therefore, these businesses start by raising capital using small cap stocks. Over time, when more people buy their shares, their market capital and share prices increase.
Subsequently, this turns the company from a small cap firm to a mid-cap firm, finally becoming a mega cap firm.
This is how most of the big companies start. The most prominent companies in the world – Apple, Google, Microsoft, Amazon, etc. – started their journey as small companies, issuing small cap stocks for people to invest in.
Note: Many investors need to be made aware that only startups can issue small cap stocks. Many small cap companies are well-established organizations with a market valuation in the millions.
Why Invest in Small Cap Stocks?
There are many reasons why investing in small cap stocks is a wise choice in 2024, especially for newer investors (unlike exchange traded funds). The two primary reasons are:
1. Lower Price of Shares
The primary reason why small cap stocks are a good investment option is because of their low prices. Since these stocks belong to smaller companies, their prices are typically lower than most shares available in the market.
Therefore, most experts proclaim that small cap stocks are the best investment options for new investors!
2. Growth Potential
Since small cap stocks belong to smaller firms, there is a big room for organizational growth. Therefore, since the prices and value of individual shares are cheap, they will increase over time as the company grows.
When the company’s share value increases, your shares also increase – which means you earn more from your investments!
For example, if you buy a share worth $10 in 2024, five years later, the price of your share might rise to $50 or even more, depending on the company’s performance!
Best Small Cap Stocks to Invest In 2024
To help you make the best decision regarding investing in stocks, we have created this list of the best small cap stocks to invest in 2024.
However, to make this list, we took certain essential factors under consideration, like:
- EPS Growth (Next 5-Year Forecast): EPS refers to Earnings Per Share. It alludes to the profit companies make per share. The higher it is, the more valuable the share will be. Therefore, analyzing EPS growth is necessary to determine the development of an organization in the next five years. More growth, more profits for investors!
- Sales and EPS Growth (Last 5 Years): Like the point above, analyzing the growth of an organization according to EPS valuation over the last five years is also a key indicator for investors. · Profitability: The forward P/E or Price to Earnings ratio determines whether the price of the stock is undervalued or overvalued. Since it compares the value of a stock to its earnings (EPS), it’s an essential indicator for investors.
Finally, after careful consideration, here are the ten best small cap stocks of 2024 you may invest in!
1. ACM Research (ACMR)
Average 5-Year EPS Growth Forecast: 42.7%
Average 5-Year Annual Sales Growth: 49.3%
Forward P/E: 11.5
ACM Research is a famous cleaning equipment provider for the semiconductor industry. Therefore, their products clean microchips used in various electronic devices.
Moreover, it’s one of the best small cap stocks to invest in because it’s a fast-growing small cap. Furthermore, their earnings increased 68% over the last five years, which looks promising. This will be further proven with its next 5-year EPS forecast of 50%. In addition, this stock has outperformed the S&P 500 by 8.6%, yielding more profits!
2. Titan Machinery (TITM)
Average 5-Year EPS Growth Forecast: 25%
Average 5-Year Annual Sales Growth: 16.3%
Forward P/E: 6.3
Titan Machinery is a chain of over 100 stores all over the USA that sells agricultural equipment. In the last five years, their EPS growth has been massive, averaging almost 70% – the highest in this list.
Moreover, analysts believe this small cap stock will grow significantly in the next five years. However, since many expect its P/E ratio to decrease in the next five years, it creates the perfect opportunity for you to invest in TITM for a lower price!
3. Stride (LRN)
Average 5-Year EPS Growth Forecast: 20%
Average 5-Year Annual Sales Growth: 14.8%
Forward P/E: 13.8
If you wish to invest in education, Stride is one of your best options. This company provides alternatives to kindergartens and schools regarding traditional teaching methods. Additionally, Stride has agreements with schools in US districts, since they must follow national educational curriculums.
Regarding its stocks, its EPS growth has been at an average of 31% in the last five years. Moreover, many expect it to grow by 12.5% next year.
Furthermore, now is an excellent time to invest in their stocks since it has a low forward P/E rating.
4. Digi International (DGII)
Average 5-Year EPS Growth Forecast: 17%
Average 5-Year Annual Sales Growth: 11.3%
Forward P/E: 11.5
Digi International has been one of the fastest growers in the wireless devices industry, with more than 160 patents!
Growing by 60% on average in the last five years, analysts expect this stock’s EPS to grow more, at an average of 16.5%. Moreover, the present P/E ratio is low, making it an excellent time to invest in these stocks!
5. The Bancorp (TBBK)
Average 5-Year EPS Growth Forecast: 12%
Average 5-Year Annual Sales Growth: 10.7%
Forward P/E: 6.2%
Bancorp is a fast-growing financial institution that provides various financial and banking services. These include credit and debit card services, commercial loans, commercial real estate bridge lending, and institutional banking.
Since 2022, their average EPS rose by 60% annually. Moreover, you must invest in this small cap stock now since its P/E ratio is at an all-time low!
6. Hess Midstream (HESM)
Average 5-Year EPS Growth Forecast: 11.1%
Average 5-Year Annual Sales Growth: 15.5%
Forward P/E: 10.8
Hess Midstream has already made quite a name for itself as a provider of oil and gas midstream services. This includes providing services like processing and storing oil and gas for various companies.
One of the primary reasons why Hess Small Cap Stocks makes this list is because of its dividend yield of 7.5%. Moreover, analysts deduce that their EPS growth will be around 6.5%. Furthermore, Hess has provided dividend growth of 11.2% since 2019.
Another good sign that Hess is a good investment is that it beat the S&P 500 by 3.4 points in the last five years.
7. Sterling Infrastructure (STRL)
Average 5-Year EPS Growth Forecast: 11%
Average 5-Year Annual Sales Growth: 14.1%
Forward P/E: 21.4%
One of the highest-performing small cap stocks in this list is Sterling Infrastructure. This company has become a big name in the construction industry, providing construction and repair of civil, residential, and transportation infrastructure.
In the last five years, their EPS grew by 33% annually and is expected to grow more. Moreover, their P/E value looks attractive, considering their valuation is higher than most companies in this list.
8. First Financial Bancorp (FFBC)
Average 5-Year EPS Growth Forecast: 10%
Average 5-Year Annual Sales Growth: 6.2%
Forward P/E: 9.2%
First Bancorp is a local, regional bank operating in Ohio, Kentucky, Indiana, and Illinois. They provide various traditional banking services like lending, retail banking, commercial finance, and wealth management.
FFBC has an average EPS growth of 10% in the last five years. However, analysts believe that they will not have smooth growth in the future. While earnings from FFBC shares will increase this financial year by 18%, they might fall the following year by 15%.
Moreover, its forward P/E ratio is decent, fluctuating between seven and fifteen.
9. OFG Bancorp (OFG)
Average 5-Year EPS Growth Forecast: 8%
Average 5-Year Annual Sales Growth: 12.3%
Forward P/E: 9.3
OFG Bancorp is another famous financial institution that provides services like First Bancorp’s. However, they are not a local financial institution like FFBC; instead, they offer services in the US Virgin Islands and Puerto Rico.
While OFG is an excellent small cap stock to invest in, it has the lowest yearly annual growth rates on this list. Therefore, analysts claim that OFG’s EPS will grow 9% this year, followed by a slump to –0.5% next year.
Moreover, the company increased its average earnings by 30% in the last five years. Furthermore, they have had an attractive P/E, ranging between 6.2 and 40 during the previous five years.
Additionally, OFG stocks outperform the S&P 500 by 5% points every year. Plus, their stocks pay a dividend of 2.6%.
10. NMI Holdings (NMIH)
Average 5-Year EPS Growth Forecast: 6.9%
Average 5-Year Annual Sales Growth: 15.4%
Forward P/E: 7.2
The final small cap stock on this list is NMI Holdings. They are mortgage insurers who help lenders manage risk mortgages against defaults belonging to low downpayment borrowers.
Analysts believe their earnings will improve by 2.7% and 12.6% in the next two years, respectively. Moreover, NMIH had an average EPS growth of 32% in the last five years.
From 2021, their P/E has fluctuated between the narrow ranges of six and 10. Therefore, the forward P/E of 7.2 provides a fair value.
However, compared to the S&P 500, their performance has been poor, underperforming by 6% points in the past five years.
So, Is It Ok to Invest in Small Cap Stocks In 2024?
The answer is: Yes, it’s ok to invest in small cap stocks.
Small cap stocks are cheaper than other types of stocks and investment options. Moreover, it’s less risky to invest in them, making them a popular choice for first-time investors!
Thanks for reading this post! If you need assistance investing in small cap stocks, please comment below!
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