Small-Cap Sensations: 3 Overlooked Stocks With Gigantic Potential
Some believe that the Street always values companies more or less correctly and is never completely wrong about companies’ outlooks. But history shows this concept is completely incorrect. In the last few years, the Street massively underestimated the value of two stocks that large investors completely overlooked: Super Micro Computer (NASDAQ:SMCI) and American Superconductor (NASDAQ:AMSC).
Super Micro specializes in making servers used to facilitate artificial (AI). It was a little-known company that was changing hands for around $55 in October 2022. Today, after the stock’s massive gains in the wake of the AI boom, SMCI stock is worth around $775 per share. The trend was largely unforeseen by the Street until the end 2022.
Similarly, large investors were completely unenthused about American Superconductor until recently. The company develops systems that facilitate the smooth flow of electricity, along with components of wind turbines and Navy ships. As recently as October 2023, shares changed hands for a paltry $6.50. However, the firm’s recent strong fiscal fourth-quarter results finally made the Street realize the company was benefiting from multiple, strong positive catalysts. AMSC stock is now worth about $23.50.
Here are three overlooked small-cap stocks that can similarly become beloved by the Street.
Redwire (RDW)
Redwire (NYSE:RDW) provides products and infrastructure that facilitates space travel. The company appears to be benefiting from the relatively recent, renewed emphasis by America and other countries on space travel.
Redwire provided the cameras that were used by Intuitive Machines’ (NASDAQ:LUNR) lunar lander that successfully touched down on the Moon in February. It also provided “deployment mechanisms and 100-foot booms” for NASA’s Solar Sail system. As a result, it appears the company is well-positioned to benefit from NASA’s revitalization.
Similarly, Redwire recently disclosed the European Space Agency chose it to provide a robotic arm prototype for the agency’s lunar lander. So it seems the company will benefit from the EU’s future space missions. Finally, the company is developing “18 ship sets of antennas and radio frequency hardware” for Rocket Lab USA (NASDAQ:RKLB), which is developing satellites for the U.S. Space Force.
In the first quarter, Redwire’s revenue of $87.8 million climbed 52% compared to the same period a year earlier. Its net cash provided by operating activities also rose by $16.8 million year-over-year to $2.8 million. Last, Redwire’s pipeline rose to a very impressive $6.8 billion.
Given Redwire’s strong positive catalysts and its impressive financial performance, it is one of the best small-cap stocks to buy.
Mayville Engineering (MEC)
Mayville Engineering (NYSE:MEC) provides products for manufacturers. Among the functions carried out by its offerings are “production, design, prototyping, tooling (and) fabrication.”
The company is likely benefiting from multiple, strong trends including the onshoring of manufacturing, the rising production of electric vehicle batteries and solar panels and the increased production of semiconductors.
Mayville’s revenue rose 9% last year to $588.4 million. Management said it is getting a lift from increased orders from military contractors and commercial vehicle makers.
In Q1, the company’s year-over-year sales growth accelerated to an impressive 13% while adjusted EBITDA advanced 34% to $18.5 million versus the same period a year earlier. The annual run rate of adjusted EBITDA is $74 million. With Mayville’s current market capitalization of $343 million, the shares are changing hands at a very low price-to-adjusted EBITDA ratio of 4.6 times.
EVgo (EVGO)
EV charging company EVgo (NASDAQ:EVGO) has a very close partnership with General Motors (NYSE:GM). Not only can GM’s EVs be easily charged at EVgo’s facilities but the automaker often provides its buyers with free charging services through EVgo. And GM is helping to finance the construction of 2,000 EVgo chargers nationwide.
Therefore, the fact that GM sold a record total of more than 9,000 EVs last month is certainly great news for EVgo and EVGO stock. In addition to the high likelihood that many of the owners of these new EVs will likely use EVgo’s chargers on their road trips, GM’s performance shows the inaccuracy of predictions of the demise of the EV sector in general and GM’s EV business in particular. Once the Street internalizes the fact that EVs have a bright future in America, EVGO stock should rally tremendously.
In Q1, EVgo’s top line more than doubled YOY to $55.2 million, and the company expects to break even on an EBITDA basis in 2025.
On the date of publication, Larry Ramer held long positions in EVGO, AMSC, and SMCI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
