To use a sports analogy, innovative small-cap stocks are akin to drafting college football players or picking out compelling prospects in baseball. While these players may have performed exceptionally well in the amateur leagues, there’s no guarantee that said performance will translate into the top tier of competition. However, when you do find the next Tom Brady or Aaron Judge, the rewards can be intense.
That’s the allure of small-capitalization enterprises. They offer a lot of promise – boy do they ever! Further, because of their relatively diminutive profile, they can benefit from the law of small numbers. Basically, even minor news items could send shares flying thanks to the power of leverage and volume in a low-participation investment. Still, a darker side exists to this framework.
It’s also possible that minor setbacks can send shares plunging. Also, a great deal of unpredictability exists with less-established entities. If you can handle the risk, though, few arenas offer as much upside potential. With that in mind, below are innovative small-cap stocks to consider.
A10 Networks (ATEN)
Falling under the infrastructure software space, A10 Networks (NYSE:ATEN) provides networking solutions in several international markets. Primarily, A10 is known for its Thunder Application Delivery Controller, which provides advanced server load balancing. It also provides encryption-related services along with threat management solutions. With so much data migrating to the cloud, A10 ranks among the most relevant of innovative small-cap stocks.
Even better, A10 is more than just a cute narrative. In the past four quarters, the company only missed once, in the fourth quarter of last year. Still, it managed to post an average earnings per share of 19 cents in the past year, beating the consensus average of 18 cents. This translated to an earnings surprise of 8.9%.
Another attractive point for ATEN stock is the valuation. Right now, shares trade at about 3.96X trailing-year sales. However, between Q1 2023 to Q1 2024, the average multiple stood at 4.1X. What’s more, analysts project fiscal 2024 sales to reach $263.5 million, up 4.7% from the prior year. Also, in fiscal 2025, revenue could land at $286.14 million, up 8.6%.
Zuora (ZUO)
Based in Redwood City, California, Zuora (NYSE:ZUO) is another player in the infrastructure software arena. Per its public profile, Zuora provides a monetization suite for modern businesses. This set of programs helps companies launch and scale new services. As well, they facilitate dynamic customer-centric business models. With enterprises looking for an edge, Zuora offers a key advantage, making it one of the innovative small-cap stocks.
Despite its undersized stature, Zuora packs quite a financial punch. In the past four quarters, the company beat all its bottom-line targets. The average EPS came out to 10 cents, handily beating the average estimate of 5 cents. What’s more, the performance translated to an earnings surprise of 102.6%. That’s impressive.
Even with the strong results, ZUO stock appears relatively undervalued. Right now, shares trade hands at 2.85X trailing-year sales. However, in the past one-year period, the metric stood at 3.01X. While that’s not exactly the biggest gap, here’s the deal: by year’s end, sales could rise by 5.3% to $454.58 million. That would make ZUO even more undervalued.
Further, by the following year, sales could pop up again to $496.38 million, up 9.2%. Thus, it makes a solid case for innovative small-cap stocks.
International Money Express (IMXI)
Headquartered in Miami, Florida, International Money Express (NASDAQ:IMXI) also falls under the infrastructure software ecosystem. Together with its subsidiaries, the company operates as an omnichannel money remittance services firm. It mainly serves the U.S., although its reach covers Latin America, the Caribbean, Africa and Asia. Thanks to the interconnected global economy and the movement of people, IMXI could be one of the attractive innovative small-cap stocks.
Now, I must admit that with the strong possibility of a second Trump administration, the movement-of-people argument could be questionable. I don’t want to get into it – it’s just a risk factor to note. So far, though, the performance has been solid. In the past year, International Money posted an average EPS of 50 cents. This beat out the consensus view of 48 cents.
Even with the risks, what may attract speculators to IMXI stock is the valuation. Right now, the market prices shares at 1.07X trailing-year revenue. However, between the first quarters of 2023 to 2024, the sales multiple stood at 1.4X.
Analysts believe that by year’s end, sales could rise 4.6% to $689.05 million. Add another 8.7% in fiscal 2025 to $749.25 million and you have a compelling opportunity.
Similarweb (SMWB)
Operating out of Israel, Similarweb (NYSE:SMWB) is an attractive software entity. Per its corporate profile, Similarweb provides a cloud-based digital intelligence platform. It offers digital research intelligence solutions for its customers, enabling them to benchmark performance against rivals and market leaders. The platform also enables clients to analyze trends in their target sector.
Of course, in the information age, data is the new gold. Further, having access to greater datasets may lead to more productive protocols and decision making. In other words, SMWB is worth the risk for enterprises seeking a competitive advantage. Notably, in the past four quarters, Similarweb generated an average EPS of 1 cent. That’s not much but consider that analysts were anticipating a loss per share of 2 cents.
Comparatively speaking, SMWB stock is also offered at a discount. Shares trade at 2.39X trailing-year sales. In the past year, this metric stood at 2.53X. Where things get spicy is in the forward projections. Analysts believe that fiscal 2024 sales could hit $244.76 million. If so, that would imply 12.3% growth from last year’s tally of $218.02 million.
Fiscal 2025 could see sales of $278.3 million. Thus, SMWB makes for one of the innovative small-cap stocks.
SkyWater Technology (SKYT)
Based in Bloomington, Minnesota, SkyWater Technology (NASDAQ:SKYT) falls under the semiconductor industry. Along with its subsidiaries, SkyWater operates as a pure-play technology foundry, engaging in semiconductor development, manufacturing and packaging service in the U.S. The last point could be critical for the entity’s forward projection. After all, the Covid-19 crisis exposed the problems of the global semiconductor supply chain.
To be fair, SkyWater isn’t a profitable enterprise. In the past four quarters, it posted a loss per share of 7 cents. That said, this figure favorably came under the expected loss per share of 11 cents. Therefore, the underlying “earnings” surprise came out to almost 18%. However, the focus is on the top line.
Enticingly, SKYT stock trades at only 1.15X trailing-year sales. That’s quite low compared to the semiconductor sector’s average multiple of 3.33X. Also, in the past year, the metric averaged 1.62X. It’s possible, then, that SKYT could grow into its prior valuation.
Analysts are seeking exactly that, with fiscal 2024 revenue expected to reach $334.56 million. If so, that would imply growth of 16.7%, making SKYT one of the innovative small-cap stocks to consider.
GigaCloud Technology (GCT)
Headquartered in El Monte, California, GigaCloud Technology (NASDAQ:GCT) operates in the software space. According to the public profile, GigaCloud provides end-to-end business-to-business (B2B) e-commerce solutions for large parcel merchandise in the U.S. and international markets. In particular, it offers its namesake marketplace, which integrates product discovery, payments and logistics tools under one umbrella.
With global commerce increasingly moving into the digital realm, GigaCloud could potentially carve out a niche segment of the market. That’s a big reason why investors should include it on their watchlist of innovative small-cap stocks. In addition, the company has been a strong financial performer. In the past year, its average EPS hit 71 cents. In contrast, analysts were only targeting 49 cents.
To be fair, GCT stock does trade at a relative premium. Right now, its sales multiple clocks in at 1.56X. However, in the past year, the metric sat at 0.87X. Still, covering experts believe that sales could reach $1.09 billion by year’s end. If so, that would imply 54.7% growth.
In fiscal 2025, revenue could swing up to $1.35 billion, a lift of 24.1%. Thus, investors should keep a close eye on it.
indie Semiconductor (INDI)
As the name suggests, indie Semiconductor (NASDAQ:INDI) falls under the computer chip space. Specifically, it conducts business in the semiconductor equipment and materials arena. Interestingly, indie provides automotive chips and software solutions for advanced driver assistance systems. As well, it brings autonomous vehicle solutions, making INDI one of the most compelling innovative small-cap stocks.
While a completely autonomous mobility system may be years down the line, manufacturers are aggressively investing in the space. If indie could carve out a viable niche, INDI stock could easily skyrocket. Of course, the issue here is the financial risk. Not only is INDI not profitable but it posted a loss per share of 8 cents in the past year. Analysts were expecting a loss of 7 cents.
However, it must also be said that indie trades at 4.05X trailing-year revenue. In the past year, this metric stood at 7.22X. Could the company grow into its prior valuation? Covering experts seem to believe so, with sales projected to hit $258.19 million by year’s end.
By fiscal 2025, the top line could jump to $400.76 million. That would imply 55.2% growth. It’s a high-risk idea to keep on the watchlist.
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.