Small-cap stocks are loosely defined as companies with a market capitalization of less than $2 billion dollars. When they are compared to large- and mid-cap companies, small-cap stocks are typically seen as having better growth potential.
By nature, small-cap stocks are subject to volatile price swings that make them appropriate only for risk-tolerant investors. One such risk is that many small-cap companies are newer entries into their field. And depending on where they are in their business cycle, they may require access to a lot of capital which can be hard to acquire.
However, if you have a tolerance for risk, these stocks have the potential for gains that exceed that of the broader market. Like any asset class, doing your due diligence is a necessity. This is another good reason to become a MarketBeat All Access member. You’ll get access to features such as a list of the Top-Rated Small-Cap Stocks. With that in mind, here are three stocks for you to add to your watch list.
Purple Innovation (NASDAQ: PRPL) – For obvious reasons, PRPL stock did very well during the pandemic. Many people sought to improve the quality of their homes and health. And, for many, this meant buying Purple Innovation’s products to make their home more comfortable. Revenue was up 51% in 2020 and earnings per share were up 80% as compared to 2019.
But you shouldn’t dismiss Purple Innovation as being just a pandemic play. For the first half of 2021, revenue is on pace to be higher than 2020 although earnings look to be lower. That could be weighing on the stock which is trading near its 52-week lows. Plus, one analyst just downgraded the stock. However, the consensus price target of analysts has PRPL stock trading at around $35 per share.
ThredUp (NASDAQ: TDUP) – The next small-cap stock that should be on your watch list is ThredUp. This is an online consignment store that has been in business since 2009. TDUP has only been trading publicly since March 2021. In that time, the stock has shown plenty of volatility and is undoubtedly frustrating investors because it’s trading right around its initial public offering (IPO) price.
But with small-cap stocks, it’s less about where the stock has been then about where it’s going. In this case, analysts are giving TDUP stock a $26 price target. If I was to be concerned about anything, it’s that the stock has a high short percentage of float. That means that it will be popular with short-term traders who are looking to capitalize on a short-term trade. But with inflation and supply chain challenges likely to be around for several quarters, shopping secondhand has never looked thriftier.
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