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In a market where big names often steal investors' attention, small-cap stocks have been viewed skeptically on Wall Street due to their underperformance since 2019, exacerbated by rising interest rates.
However, Kornitzer Capital Management’s Chris Carter sees untapped potential in small-cap stocks, despite ongoing challenges from stubbornly high interest rates and the allure of growth giants such as Nvidia (NVDA). The portfolio manager’s strategy hinges on identifying attractively valued companies with robust margins, solid free cash flow, and enduring competitive advantages.
In this context, Carter highlighted three small-cap stocks - Bio-Techne Corporation (TECH), Match Group, Inc. (MTCH), and MarketAxess Holdings Inc. (MKTX) - which perfectly align with his investment philosophy and are currently overlooked by investors. Let’s take a closer look at them.
Small-Cap Stock #1: Bio-Techne Corp
With a market cap of $12.2 billion, Minnesota-based Bio-Techne Corporation (TECH) is a leading global life sciences company that offers innovative tools and bioactive reagents for the research and clinical diagnostics sectors. The company’s products support scientific investigations into biological processes and disease progression, facilitate drug discovery, and enable precise clinical testing and diagnosis.
While the stock has pulled back marginally over the past 52 weeks, it has gained 3.5% over the past six months.
On May 24, Bio-Techne paid its shareholders a quarterly dividend of $0.08 per share. Its annualized dividend of $0.32 translates to a 0.42% dividend yield. Furthermore, it maintains a low payout ratio of 18.69%, channeling the majority of its earnings into growth initiatives.
In terms of valuation, the stock trades at 10.66 times sales, which is lower than its own five-year average of 13.29x.
Following the announcement of its better-than-expected fiscal Q3 earnings results on May 1, Bio-Techne’s shares jumped a notable 16.2%. The company’s net sales of $303.4 million rose 3.2%, surpassing estimates by 3.7%. Its adjusted EPS of $0.48 also topped projections by 5.3%.
During the quarter, cash flow generated from operations rose to $223.5 million, showing a strong 31% annual improvement. Moreover, despite a slight decline in revenue from the Protein Sciences segment, its revenue from the Diagnostics and Genomics segment demonstrated strong growth, rising 16% year over year.
Commenting on the company’s Q3 performance, Kim Kelderman, President and CEO, emphasized Bio-Techne's diverse portfolio, including bioactive reagents, proteomic analysis, cell & gene therapy, spatial biology, and diagnostics. These products are strategically positioned to advance the company’s scientific research and create sustainable shareholder value.
Analysts tracking Bio-Techne project the company’s profit to reach $1.56 per share in fiscal 2024 and grow 16% to $1.81 per share in fiscal 2025.
Kornitzer Capital’s Carter highlights Bio-Techne as a promising investment due to its leadership in supplying life science equipment and services. Despite challenges like pharmaceutical budget cuts post-COVID-19 and fluctuating venture capital funding, Bio-Techne's focus on quality over price has helped maintain its market share and appeal to investors seeking resilience in the biopharma sector.
Bio-Techne stock has a consensus “Strong Buy” rating overall. Out of the 14 analysts covering the stock, 11 suggest a “Strong Buy,” and the remaining three give a “Hold” rating.
The average analyst price target of $83.08 indicates a potential upside of just 7.9% from the current price levels. However, the Street-high price target of $95 suggests a potential upside of 23.4%.
Small-Cap Stock #2: Match Group
Based in Texas, Match Group, Inc. (MTCH) has positioned itself as a leader in the dating industry, providing over 45 dating products in multiple languages across numerous countries. Valued at $8.2 billion by market cap, some of its renowned brands include Tinder, Hinge, Match.com, PlentyOfFish, Meetic, and OkCupid. Tinder, the world's most downloaded and highest-grossing dating app, plays a pivotal role in driving the company's annual revenue growth.
Shares of this dating giant have slumped 26% over the past 52 weeks and 12.9% on a YTD basis.
Priced at 15 times forward earnings and 2.50 times sales, the stock trades much lower than its own five-year averages of 36.09x and 6.25x, respectively.
On May 7, the company reported its Q1 earnings results, which sailed past Wall Street’s projections on both the top and bottom lines. The company’s revenue of $859.7 million improved 9.2% year over year, while its EPS of $0.44 surged 4.8%, beating Wall Street's forecast by a solid 10% margin. Moreover, as of March 31, the company’s free cash flow stood at $267 million.
During the quarter, Tinder's direct revenue increased 9% year over year to $481 million. Despite a notable decline in Tinder payers to under 10 million, its revenue per payer (RPP) rose 20% annually to $16.52, driven by strategic pricing optimizations and new subscription packages. Hinge also demonstrated impressive growth, with direct revenue soaring 50% year over year to $124 million, fueled by its rising popularity and a 14% increase in RPP.
For Q2, management expects total revenue to range between $850 million and $860 million, reflecting a 2% to 4% year-over-year growth. Also, adjusted operating income is projected to land between $300 million and $305 million, indicating a relatively flat annual growth.
Analysts tracking Match expect the company’s profit to reach $2.11 per share in fiscal 2024 and rise 13.7% to $2.40 per share in fiscal 2025.
Despite Match Group experiencing a decline in popularity post-pandemic, analyst Carter emphasizes the strength of Hinge, which stands out as a preferred platform for users seeking committed relationships. Plus, with online dating becoming the predominant method for people to meet and form connections amid rising social isolation, the wealth manager believes Match Group's diverse portfolio of dating apps is well-equipped to leverage this trend and thrive in today's evolving social landscape.
Match stock has a consensus “Moderate Buy” rating overall. Out of the 25 analysts offering recommendations for the stock, 14 suggest a “Strong Buy,” one advises a “Moderate Buy,” and the remaining 10 give a “Hold” rating.
The average analyst price target of $39.13 indicates potential upside of 22.9% from the current price levels, while the Street-high price target of $55 suggests that the stock could rally as much as 72.8%.
Small-Cap Stock #3: MarketAxess
New York-based MarketAxess Holdings Inc. (MKTX) is a premier multi-dealer trading platform providing institutional investors with access to global liquidity across a range of products, including U.S. high-grade corporate bonds, emerging markets and high-yield bonds, European bonds, U.S. agency bonds, credit derivatives, and other fixed-income securities. With a market cap of around $7.6 billion, the company generates its operating revenues through commissions, information services, and post-trade services.
The stock has plunged 25.3% over the past 52 weeks.
With a solid track record of 14 years of consecutive dividend growth, the company remains steadfast in delivering value to its shareholders. On June 5, MarketAxess paid its shareholders a quarterly dividend of $0.74 per share. Its annualized dividend of $2.96 translates to a 1.47% dividend yield. Also, the company maintains a healthy dividend payout ratio of 42.37%, reflecting its commitment to sustainable dividend distributions while supporting future growth initiatives.
In terms of valuation, the stock is trading at 27.26 times forward earnings and 9.84 times sales, much lower than its own five-year averages of 51.04x and 20.87x, respectively.
On May 7, the company reported its Q1 earnings results. Revenue rose 3.5% year over year to $210.3 million, slightly below analyst expectations. However, the company outperformed Wall Street’s forecasts for EPS by 3.8%, posting $1.92 per share. As of March 31, the company held approximately $512.5 million in cash, cash equivalents, and investments, while its free cash flow stood at $30.9 million.
During the quarter, MarketAxess demonstrated robust revenue growth across its core segments. Information services and post-trade services revenues increased by 7.9% and 7.5%, respectively, driven by new data contracts. Moreover, technology services revenue surged to $2.8 million.
Commenting on the company’s Q1 performance, CEO Chris Concannon said, “In the first quarter, we delivered record total credit ADV of $15.0 billion, strong growth in U.S. high-grade commission revenue of 8.0%, and record commission revenue across emerging markets, Eurobonds and municipal bonds. These strong results helped offset a 28.2% decrease in U.S. high-yield commission revenue, impacted by low levels of credit spread volatility.”
Based on Q1 expense trends, management expects fiscal 2024 operating expenses to align toward the lower end of the previous guidance, ranging between $480 million and $500 million. Analysts tracking MarketAxess expect the company’s profit to reach $7.17 per share in fiscal 2024, up 4.1% year over year, and rise another 11.7% to $8.01 per share in fiscal 2025.
Kornitzer Capital views MarketAxess favorably due to its significant revenue from corporate bonds, with a third of that revenue coming internationally. Despite challenges from the current interest rate environment, Carter sees a promising future due to the ongoing shift towards electronic trading in the fixed income market. He believes MarketAxess has been steadily gaining market share over the past decade and anticipates this trend will continue as electronic trading continues to replace traditional voice and messaging methods on platforms like Bloomberg.
MarketAxess stock has a consensus “Hold” rating overall. Out of the 15 analysts covering the stock, four suggest a “Strong Buy,” nine recommend a “Hold,” one advises a “Moderate Sell,” and the remaining one gives a “Strong Sell” rating.
The average analyst price target of $234.83 indicates a potential upside of 17% from the current price levels. However, the Street-high price target of $300 suggests that the stock could rally as much as 49.5%.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
