On Wall Street, the allure of high-growth small-cap stocks is undeniable. The potential for explosive returns can be a powerful motivator for investors seeking to outperform the market. These smaller companies, typically valued under $2 billion, have the ability to disrupt established markets. However, with this potential comes greater risk. Unlike their large-cap counterparts, small-cap stocks can be more volatile and susceptible to market fluctuations.
Since January, the benchmark S&P 500 index has advanced more than 17%. Conversely, the Vanguard Small-Cap Index Fund ETF (NYSEARCA:VB) has underperformed the broader market, gaining only 2% year-to-date (YTD). This disparity suggests potential for a catch-up rally for small-cap stocks. Thus, here are three high-growth small-cap stocks that could be prime candidates for significant appreciation.
Bloomin’ Brands (BLMN)
First in our spotlight on high-growth small-cap stocks is Bloomin’ Brands (NASDAQ:BLMN), a notable player in the casual dining sector. Renowned for brands such as Outback Steakhouse and Carrabba’s Italian Grill, Bloomin’ Brands offers diverse dining experiences, appealing to a broad customer base.
In early May, BLMN reported mixed first-quarter 2024 earnings. Revenue fell 4% year-over-year (YOY) to $1.2 billion. Adjusted diluted EPS slumped to 70 cents, down 28.5% from the prior-year quarter. Despite industry challenges, including unexpected January weather impacts, the company exceeded expectations with U.S. comparable sales outperforming industry averages.
Meanwhile, the involvement of Starboard Value, an activist investment firm, on the board signals the potential for increased shareholder value through strategic initiatives and operational improvements. For instance, Bloomin’ Brands is actively exploring strategic alternatives for its Brazilian operations, including either sales or refranchising steps, aimed at maximizing shareholder value. With a robust presence of 159 Outback Steakhouse restaurants in Brazil and ongoing expansion plans, the company remains focused on growth opportunities.
Despite a notable 40% YTD decline in its stock price, BLMN offers an attractive 5.9% dividend yield. Trading at 6.5 times forward earnings and 0.3 times sales, the stock appears undervalued. Analysts remain optimistic, with a 12-month median price forecast of $27, indicating a potential upside of over 65% from current levels.
MillerKnoll (MLKN)
MillerKnoll (NASDAQ:MLKN) emerges as another top pick among high-growth small-cap stocks. As a respected player within the commercial office furniture design segment, MillerKnoll offers furniture and interior design services to create workspaces.
Closing fiscal year 2024 on a high note, MillerKnoll reported substantial fourth quarter earnings growth. Orders increased 1.1% to $933 million, while adjusted diluted EPS soared 63% to 67 cents, surpassing guidance. This underscores the company’s profitability and growth potential, bolstered by $160 million in annualized run-rate cost synergies from the Knoll integration.
Investors note that MillerKnoll’s sustainability efforts and award-winning designs drive customer demand and market share growth. Management anticipates growth in fiscal 2025, fueled by increased contract space activity, improved trade show traffic, and favorable home sales trends.
MLKN stock has dropped nearly 3% in 2024, but currently offers a 2.9% dividend yield.. The shares are changing hands at an appealing valuation of 11.7 times forward earnings and 0.5 times sales. Analysts have set a 12-month median price target of $35, an almost 35% upside potential.
Tegna (TGNA)
Rounding out our discussion of high-growth small-cap stocks, we highlight media company Tegna (NYSE:TGNA). Through its dozens of television stations stateside, Tegna delivers a mix of TV programming and digital content, including True Crime Network, Quest and Twist.
In the first quarter of 2024, Tegna reported revenues of $714 million, a 4% decline YOY, primarily from lower subscription income. Non-GAAP net income dropped 25% YOY to $80 million, translating into a diluted EPS of 45 cents compared to 47 cents a year ago.
Tegna is expanding its local news and sports offerings, securing exclusive partnerships like with the NFL’s Washington Commanders through WUSA9. Additionally, the company is increasing Indiana Fever broadcasts via WTHR in 11 new markets. The upcoming presidential election covering is also expected to drive second-half performance.
Management plans to return 40% to 60% of its adjusted free cash flow, totaling $113 million in the first quarter, to shareholders through dividends and buybacks in 2024-2025. The remainder will be allocated to investments, acquisitions and debt reduction.
So far this year, TGNA stock has declined 7%, while the stock offers a 3.6% dividend yield. The shares currently trade at 4.6 times forward earnings and 0.9 times sales. Finally, Wall Street has set a 12-month median price target of $18.50 for Tegna stock, indicating a 30% upside potential.
On the date of publication, Tezcan Gecgil 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.