On Wall Street, small-cap stocks often present unique opportunities for significant growth. These under-the-radar companies are typically not as well-known or widely covered by analysts as their large-cap counterparts. Yet, they can deliver jumbo-sized gains that may far outstrip the market average. Moreover, small-cap stocks or exchange-traded funds (ETFs), such as the Vanguard Small-Cap ETF (NYSEARCA:VB), that focus on small-caps can help provide portfolio diversification.
Academic research suggests that small-cap stocks have historically outperformed large-cap stocks over long periods. However, year-to-date (YTD), the Russell 2000 index, a benchmark for small-cap stocks, has lost about 1%. Similarly, the Morningstar U.S. Small Cap Index is marginally down. On the other hand, since January, the S&P 500 index has advanced over 13.5%. Thus, the recent decline in small caps may offer a better entry point for long-term investors.
Finally, we should note that small-cap stocks are more sensitive to domestic economic growth and changes in interest rates than large-caps. This sensitivity can lead to higher volatility but also presents opportunities for significant outperformance during economic recoveries. With this information, three small-cap shares deserve your attention in the rest of 2024.
Addus HomeCare (ADUS)
Health and personal care services provider Addus HomeCare (NASDAQ:ADUS) is the first company among today’s small-cap stocks. The Texas-headquartered company provides personal care services to elderly, chronically ill and disabled individuals stateside. Its services range from non-medical assistance with daily activities to nursing and therapy for individuals recovering from illness or hospitalization.
Addus HomeCare reported robust financial performance in the first quarter of 2024. The company achieved total revenue of $280.7 million, an 11.6% increase compared to the same period in 2023. This growth was driven by strong performance across its segments, with personal care revenue contributing $208 million, or 74.1% of total revenue. Hospice and home health revenues were $55.9 million and $16.9 million, respectively. As a result, adjusted EPS was $1.21, a significant 24.7% increase YoY.
Recent metrics suggest that this specialized personal care segment in the U.S. is growing fast, especially as our population ages. As a result, companies like Addus HomeCare are well-positioned to benefit from these trends, providing essential services that improve the quality of life for their clients.
Addus has been actively pursuing strategic acquisitions to enhance its service offerings and expand its market presence. In August 2023, the company acquired Tennessee Quality Care, a home health, hospice and private-duty nursing services provider. This acquisition aligns with Addus’ strategy to obtain the needed scale in its current personal care markets. Earlier in June, management also announced the acquisition of the personal care operations of Atlanta-based Gentiva, a soothing and personal care services company.
YTD and ADUS shares have advanced 25% and are changing hands at 22.7 times forward earnings and 1.7 times sales. Meanwhile, analysts have a 12-month median target of $128.50, or a 10% increase from current levels.
ePlus (PLUS)
Next up among our small-cap stocks is the software-as-a-service (SaaS) solution provider ePlus (NASDAQ:PLUS). The company’s products and services include cloud computing, cybersecurity, data center solutions and managed services.
According to the most recent quarterly earnings, net sales grew by 12.7% YoY to $554.5 million. Investors noted that technology business gross billings increased by 13.8% to $834.3 million. However, EPS came in slightly below analyst estimates. Meanwhile, for fiscal year 2025, ePlus is projecting net sales growth of 3% to 6% over the prior fiscal year.
ePlus has been actively pursuing strategic acquisitions and partnerships to diversify its business and expand its market presence. For instance, earlier in 2024, the company acquired data center solutions provider PEAK Resources to strengthen ePlus’ market position further. In addition, in June, ePlus was awarded the “Infrastructure Solutions Group Partner of the Year Award” by Lenovo’s U.S. operations (OTCMKTS:LNVGY).
Yet, despite the positive developments, PLUS stock has lost over 8% YTD. Meanwhile, the forward price-to-earnings (P/E) and price-to-sales (P/S) ratios stand at 13.9x and 0.9x, respectively. Wall Street remains optimistic, with a price target that suggests a potential move of close to 24%.
Openlane (KAR)
We conclude our discussion on small-cap stocks with Openlane (NYSE:KAR). The Indiana-headquartered company operates in the automotive remarketing industry, which plays a crucial role in the used vehicle market. The industry facilitates the efficient exchange of used vehicles between sellers (e.g., rental car companies and dealerships) and buyers (e.g., dealers and wholesalers).
Companies like Openlane mainly provide digital platforms for auctions, streamlining the process and expanding market reach. In recent years, the shift towards online auctions and digital platforms has transformed the industry, offering greater convenience and efficiency for buyers and sellers.
Openlane operates in the U.S., Canada, Mexico, the U.K. and continental Europe. Its recent quarterly earnings showed an adjusted EBITDA of $75 million and free cash flow from operations of $100 million. Openplane’s marketplace segment grew volumes by 13%, contributing 47% of the total company adjusted EBITDA.
Investors noted that the company’s marketplace volumes, GMV and market share saw significant growth, which was primarily driven by its U.S. business. Openlane remains a market heavyweight in commercial off-lease volumes, with substantial volume increases in the U.S. and Canada. Management anticipates continued growth opportunities in the dealer segment as most industry volumes are still transacted at physical auctions.
Since January, KAR stock has rallied close to 10%. The shares are changing hands at 19.1 times forward earnings and 1.1 times trailing sales. Finally, Wall Street’s median 12-month price forecast suggests KAR shares could advance further by almost 20%.
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.
