Small-cap stocks are frequently overlooked, as mega-cap stocks tend to command all of the attention. Small-caps have relatively modest market capitalizations, ranging from $300 million to $2 billion. Yet, these companies have the potential for rapid growth and innovation if investors are patient and willing to take a risk.
Most of these companies are in the nascent stage of their growth cycle. As these companies innovate and expand, their stock prices can rise significantly. Here are two such hidden gems among the small-cap stocks that Wall Street believes will soar.
Small-Cap Stock #1: Harmonic
Harmonic (HLIT) Inc. has established a significant presence in video delivery and streaming solutions. It offers video delivery infrastructure to broadcasters, cable operators, satellite companies, and telecommunications companies.
Valued at $1.4 billion, Harmonic stock has dipped 5.8% year-to-date (YTD), compared to the S&P 500 Index’s ($SPX) gain of 15.4%.
Harmonic operates in two segments. The video segment offers video processing and distribution solutions, including cloud-based services and software. The Cable Access Segment focuses on cable access solutions, which allow cable operators to provide high-speed broadband services.
The company has reported consistent revenue growth, thanks to rising demand for video streaming solutions and broadband services.
Total revenue fell by 22.5% in the first quarter. However, Harmonic reported a $677.8 million backlog and deferred revenue (revenue that has yet to be recognized). Plus, Harmonic has shown improvements in profitability through cost management and operational efficiency. While the company reported no loss for the quarter, it also reported no profit, compared to a profit of $0.12 per share in the previous year's quarter.
Management expects that the backlog and deferred revenue, combined with the company's restructuring actions in the video segment, will contribute to long-term growth and profitability.
For the full year, the company anticipates net income of $0.51 to $0.71 per share and revenue growth of 6% to 14% over 2023. Analysts predict that revenue and earnings will increase by 8.0% and 68.2%, respectively, in 2024. In 2025, revenue and earnings are expected to increase by 22.3% and 59%, respectively.
The growing popularity of video streaming services, as well as the rollout of 5G networks, are expected to drive demand for the company's products and services. Harmonic is currently an attractive growth pick, trading at 19 times forward earnings.
What Does Wall Street Say About Harmonic Stock?
Overall, analysts have an average rating of “strong buy” for HLIT. Based on its mean target price of $16, the stock has an upside potential of 30.3% from current levels. Plus, its high target price of $18 implies an upside potential of 46.6% over the next 12 months.
Out of six analysts covering the stock, five have a “strong buy” rating and one has a “moderate buy” rating.
Small-Cap Stock #2: Enovix Corp
Enovix Corp. (ENVX) is a cutting-edge technology company focused on advanced battery development. The company creates high-performance, next-generation lithium-ion batteries to meet the needs of consumer electronics, electric vehicles, and the Internet of Things (IoT).
Valued at $2.7 billion, Enovix stock has gained 24.4% YTD, outperforming the overall market.
Enovix batteries outperform conventional lithium-ion batteries in energy density, safety, and cycle life. The company reported a dramatic increase in revenue to $5.3 million in the first quarter, up from $21,000 in the year-ago quarter, driven by outperformance from batteries sold to IoT customers.
The adjusted net loss totaled $0.31 per share. However, with an efficient cost structure, management is working to reduce costs and achieve profitability sooner.
The company expects a drastic jump in revenue in Q2 to a range between $3 million and $4 million, compared to $42,000 in the prior-year quarter. It also expects to report a loss of $0.22 to $0.28 per share.
Analysts predict that Enovix’s revenue will increase by 180.7% in 2024, followed by 259% growth in 2025.
Enovix's Fab2 factory in Malaysia is set to begin battery production this year, with final EX-1M batteries available for sampling in Q2. With the increasing demand for advanced battery technologies and the company's innovative approach, Enovix is poised to thrive in the coming years.
What Does Wall Street Say About Enovix Stock?
Overall, analysts have an average rating of “strong buy” for ENVX. Based on its mean target price of $21, the stock has an upside potential of 34.7% from current levels. Plus, its high target price of $36 implies an upside potential of 131% over the next 12 months.
Out of 13 analysts covering the stock, 12 have a “strong buy” rating and one has a “hold” rating.
