Small-cap growth stocks are attractive investments now due to their potential for higher growth and diversification benefits. They offer broader access to various sectors, and present opportunities for mispricing, enabling skilled managers to identify undervalued companies and enhance overall portfolio performance.
Therefore, investors could consider buying fundamentally strong small-cap growth stocks such as Despegar.com, Corp. (DESP), Fiverr International Ltd. (FVRR), and FARO Technologies, Inc. (FARO), which Wall Street believes will soar.
The BEA reported a 3.0% rise in Q2 2024 real GDP, up from 1.6% in Q1, driven by consumer spending and business investment. Notably, the Business Activity Index hit 59.9%, with new orders at 59.4%, marking the third consecutive month of expansion. The Services PMI at 54.9% reflects robust sector growth despite employment and supply chain challenges.
Consequently, with robust service sector activity and recent interest rate cuts, it may now be an opportune time to consider small-cap growth investments. Let's explore the fundamentals of the small-cap growth stocks mentioned above, which look poised to soar in the near term.
Despegar.com, Corp. (DESP)
Headquartered in Road Town, the British Virgin Islands, DESP is an online travel company that provides a range of travel and travel-related products to leisure and corporate travelers in Latin America and the United States. It operates through three segments: Air; Packages, Hotels, and Other Travel Products; and Financial Services. DESP is valued at $895.27 million by market cap.
On October 1, 2024, DESP announced the integration of NuPay as a new payment option on its travel platform, allowing Nubank's 95.50 million Brazilian customers to access DESP’s services. This partnership enhances payment convenience and boosts conversion rates for both companies.
In terms of the trailing-12-month EBITDA margin, DESP’s 17.93% is 58.5% higher than the 11.31% industry average. Its 69.53% trailing-12-month gross profit margin is 86.5% higher than the 37.29% industry average. Likewise, the stock’s 51.79% trailing-12-month Return on Total Capital ratio is 740.7% higher than the 6.16% industry average.
DESP’s revenue grew at a CAGR of 60.3% over the past three years. Likewise, its Total Assets grew at a CAGR of 3.1% over the past three years.
DESP’s total revenue for the second quarter that ended June 30, 2024, rose 11.8% year-over-year to $185.05 million, and its gross profit grew 26.1% from the year-ago value to $133.10 million. For the same quarter, its adjusted net income and EPS came in at $30.22 million, up 397.2% year-over-year. Additionally, its earnings per share stood at $0.07.
For the quarter ended September 30, 2024, DESP’s EPS is expected to increase 7% year-over-year to $190.53 million. Its EPS for the quarter ending December 31, 2024, is expected to rise 24.7% year-over-year to $0.34. It surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past year, DESP’s stock has gained 72.2% to close the last trading session at $12.50. The average analyst price target of $5.25 indicates a 21.7% upside potential.
It’s no surprise that DESP has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, and Quality. Within the A-rated Internet industry, it is ranked #11 out of 52 stocks. To see DESP’s Momentum, Stability, and Sentiment ratings, click here.
Fiverr International Ltd. (FVRR)
Valued at $835.04 million by market cap and headquartered in Tel Aviv, Israel, FVRR operates an online marketplace worldwide. Its platform enables sellers to offer their services and buyers to purchase them. The company's platform includes various categories across ten verticals, including graphic design, digital marketing, writing and translation, video and animation, music and audio, and programming and tech.
In terms of the trailing-12-month gross profit margin, FVRR’s 83.34% is 165.8% higher than the 31.35% industry average. Similarly, its 18.49% trailing-12-month levered FCF margin is 186.9% higher than the 6.45% industry average.
FVRR’s levered FCF grew at a CAGR of 22.2% over the past three years. Similarly, its revenue grew at a CAGR of 13.9% during the same period.
For the fiscal second quarter that ended June 30, 2024, FVRR’s revenues increased 5.9% year-over-year to $94.66 million. Its gross profit rose 6.6% year-over-year to $78.64 million. The company’s net income stood at $3.27 million, up considerably from the year-ago quarter, and its net income per share attributable to ordinary shareholders increased by 800% over the prior-year quarter to $0.08.
Street expects FVRR’s EPS and revenue for the quarter ended September 30, 2024, to increase 10.1% and 4.2% year-over-year to $0.61 and $96.39 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 14% to close the last trading session at $23.63. The average analyst price target of $31.11 indicates a 31.9% upside potential.
FVRR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value and Quality. It is ranked #4 in the Internet industry. Beyond what we stated above, we also have given FVRR grades for Momentum, Stability, and Sentiment. Get all the FVRR ratings here.
FARO Technologies, Inc. (FARO)
Valued at $353.28 million by market cap, FARO designs, develops, manufactures, markets, and supports software-driven three-dimensional measurement, imaging, and realization solutions worldwide.
In terms of the trailing-12-month levered FCF margin, FARO’s 10.66% is 3.1% higher than the 10.34% industry average. Its 53.81% trailing-12-month gross profit margin is 8.5% higher than the 49.60% industry average. Moreover, the stock’s 0.72x trailing-12-month asset turnover ratio is 15.3% higher than the 0.62x industry average.
FARO’s revenue grew at a CAGR of 3% over the past three years. Also, its EBITDA grew at a CAGR of 33.7% over the past three years.
FARO’s net sales for the fiscal second quarter that ended June 30, 2024, amounted to $82.09 million. The company’s non-GAAP gross profit grew 32.1% from the year-ago value to $45.16 million. Moreover, its non-GAAP net income stood at $3.36 million, or $0.18 per share, compared to a non-GAAP net loss of $10.75 million, or $0.57 per share, in the previous year.
Analysts expect FARO’s EPS for the quarter ended September 30, 2024, to increase 50% year-over-year to 0.03. Its revenue for fiscal 2025 is expected to grow 5.1% year-over-year to $353.89 million. It surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 22.4% to close the last trading session at $18.03. The average analyst price target of $24.50 indicates a 36.2% upside potential.
FARO’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
FARO has a B grade for Growth, Value, and Quality. Within the A-rated Software - Business industry, it is ranked #9 out of 40 stocks. To access FARO’s additional ratings for Momentum, Stability, and Sentiment, click here.
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DESP shares were trading at $13.47 per share on Friday afternoon, up $0.91 (+7.25%). Year-to-date, DESP has gained 42.39%, versus a 21.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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