Investing in small-cap stocks is not for the fainthearted. These small companies have market capitalizations ranging from $250 million to approximately $2 billion. These usually have more room for growth than large-cap companies, because they are typically in the early stages of development or are niche players in their industries. However, they often have higher volatility than large-cap stocks.
Generally, investors prefer large-cap stocks, such as Amazon (AMZN), Microsoft (MSFT), and Nvidia (NVDA), as these companies are well-established and financially stable. Nonetheless, a recent report from Tom Lee, head of research at Fundstrat Global Advisors, has altered the narrative around small-cap stocks. Lee, who has always favored small-cap stocks, recently stated that they represent the "most compelling near-term investment case."
Lee cites five reasons why he believes small-cap stocks will gain around 50% in 2024. After remaining flat through most of the first half of the year, the benchmark small-cap Russell 2000 Index (RUT) has now gained more than 10% year-to-date.
Here are three small-cap stocks for investors who can handle the risk, and enjoy significant price appreciation over time.
#1. ChargePoint Holdings
ChargePoint Holdings (CHPT) is a key player in the electric vehicle (EV) charging infrastructure market. It manages a network of independently owned EV charging stations, providing hardware, software, and other services.
Valued at $859.4 million, ChargePoint’s stock has fallen 10.3% YTD, compared to the S&P 500 Index’s ($SPX) gain of 13.2%.
The rising adoption of EVs has resulted in increased demand for charging networks, which has boosted ChargePoint's financial performance in recent years. However, macroeconomic headwinds continue to affect all EV manufacturers. This resulted in an 18% year-over-year decline in first-quarter fiscal 2025 revenue to $107 million.
As a growth-focused company, ChargePoint is currently not profitable. The company is making significant investments in expanding its network and improving its technology, which is affecting its short-term profitability. However, Q1 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) losses decreased to $36.5 million, down from $48.9 million in the year-ago quarter.
Recently, the company collaborated with LG Electronics to use LG's advanced EV charging hardware to transform EV charging.
By the fourth quarter of fiscal 2025, ChargePoint expects to be EBITDA positive. Analysts who cover the stock expect net losses to fall from $1.22 per share in fiscal 2024 to $0.31 in fiscal 2025, eventually narrowing to $0.12. Revenue is expected to increase 3.5% in fiscal 2025 and 28.6% in fiscal 2026.
What Does Wall Street Say About CHPT Stock?
Overall, CHPT stock is rated a “moderate buy” on Wall Street. Of the 18 analysts that cover CHPT, five rate it a “strong buy,” one recommends a “moderate buy,” 11 say it’s a “hold,” and one suggests a “strong sell.”
The average target price of $2.86 implies an upside potential of 40.8% over the next 12 months. The Street-high estimate for CHPT is $6, which suggests the stock can rally as high as 195.5% from current levels.
#2. Viridian Therapeutics
Viridian Therapeutics (VRDN), a clinical-stage biopharmaceutical company, has piqued analysts' interest due to its novel approach to treating rare diseases. It focuses on thyroid eye disease (TED), a rare and debilitating autoimmune disorder that affects the muscles and tissues surrounding the eyes.
Valued at $1.04 billion, Viridian’s stock has dipped nearly 22% YTD, compared to the broader market's gain.
Viridian's lead product candidate is VRDN-001, a monoclonal antibody that inhibits the insulin-like growth factor-1 receptor (IGF-1R). The IGF-1R pathway is involved in TED, and targeting this receptor may provide a more effective treatment option for patients.
VRDN-001 is currently being tested in two global phase 3 clinical trials to determine its safety and efficacy in patients with both active and chronic TED. Early trial results have been promising, indicating potential improvements in symptom reduction and disease progression.
In addition, the company intends to begin two phase 3 clinical trials of VRDN-003 (subcutaneous therapy for TED) in August. Besides its TED candidates, the company is developing two other candidates, VRDN-006 and VRDN-008, which are neonatal Fc receptor (FcRn) inhibitors for the treatment of multiple autoimmune diseases.
Viridian ended the first quarter with $613.2 million in cash, cash equivalents, and short-term investments. The company believes this "will be sufficient to fund its operations into the second half of 2026."
As a clinical-stage biotech company, Viridian Therapeutics does not yet generate revenue. However, the market for TED treatments is large, with few effective therapies currently available. Viridian’s potential therapies, if and when approved, can boost the company’s revenue and profits.
Given that developing successful therapies could take years, Viridian Therapeutics is a high-risk, high-reward investment case.
What Does Wall Street Say About VRDN Stock?
Overall, Viridian stock is rated a “strong buy” on Wall Street. Of the 16 analysts that cover VRDN, 12 rate it a “strong buy,” two recommend a “moderate buy,” and two rate it a “hold.”
The average target price of $35.13 implies an upside potential of about 115% over the next 12 months. The Street-high estimate for VRDN is $46.
#3. Soleno Therapeutic
Soleno Therapeutic (SLNO), like Viridian, is a clinical-stage biotech firm. Its primary goal is to create novel therapies for the treatment of Prader-Willi syndrome (PWS), a complex genetic disorder that causes obesity, intellectual disability, and shortness of height.
Valued at $1.56 billion, Soleno’s stock has gained 16.7% YTD, compared to the overall market.
The company's lead product candidate, DCCR (diazoxide choline controlled-release) tablets, is intended to treat the core symptoms of PWS and improve patient outcomes. It is currently undergoing Phase 3 clinical trials.
In April, the Food and Drug Administration (FDA) designated DCCR as a Breakthrough Therapy due to the positive results of the Phase 3 trials. This allows DCCR to be used as a PWS treatment for adults and children aged 4 and up who exhibit hyperphagia symptoms.
On June 28, the company submitted a New Drug Application (NDA) to DCCR for approval to treat PWS. Furthermore, DCCR is classified as an orphan drug in the U.S. and the European Union, along with a Fast Track Designation status in the U.S., highlighting the critical need for new treatments in this area.
The company has already begun planning for the potential commercialization launch of DCCR. According to Soleno, “DCCR has the potential to significantly improve the lives of people living with PWS, and, if approved, could be a foundational therapy in the treatment of PWS.”
Soleno's cash, cash equivalents, and short-term investments totaled $149.6 million at the end of the quarter, with long-term investments of $8.8 million. In May, the company raised net proceeds of $148.8 million through a public offering.
The company is still not profitable. However, if DCCR receives regulatory approval, Soleno could gain a sizable share of the market for PWS treatment, resulting in significant revenue and earnings growth.
What Does Wall Street Say About SLNO Stock?
Overall, Soleno stock is rated a “strong buy” on Wall Street. Of the six analysts that cover SLNO, all of them rate it a “strong buy.”
The average target price of $65 implies an upside potential of 38.4% over the next 12 months. The Street-high estimate for Soleno is $93, which suggests the stock could go as high as 98% from current levels.
