Small-cap companies are accustomed to living in the shadow of mega-cap tech firms, but there are signs that the market backdrop could be changing for some of these companies. Investors have been looking beyond the Magnificent Seven for growth opportunities, and smaller companies with improving fundamentals, unique business models, or other noteworthy catalysts may finally have an opportunity to win investor attention.
As interest rates have recently risen, it may be a chance for contrarian investors to buy in before economic conditions continue to improve for small companies seeking financing. At the same time, the distinction between valuations of large- and small-caps remains atypically wide, which means that there may be chances to rotate into smaller names if the risk environment improves. Of course, small-caps still come with their share of risks, including volatility, operational concerns, cash flow, and more. But with all this in mind, the three companies below may stand out for their fundamentals and unique catalysts that could indicate growth going forward.
