I know that you are planning on investing in the stock market for your future. I believe that it is always better to be prepared than unprepared. By looking at small cap stocks to invest in 2021 it gives you time to save money and learn about these companies rather than trying to learn about them on the fly when the need arises.
If you are interested in increasing your small cap portfolio, one of the best things that you can do is start today by learning more about the companies you’re investing in. This article will walk you through the steps to take to build up your investment knowledge and help you become a successful investor.
Inox Leisure
With vaccination rates increasing, sentiments are appearing to improve as well with ‘Retail and recreation’ mobility, which should lighten fears of another COVID-19 wave. The content pipeline looks strong, with several tent-pole movies rushing to book release dates, starting with the Diwali release of ‘Sooryavanshi’ in November 2021. Though the domestic box-office is still tepid, overseas markets have witnessed significant improvements in 2HCY21 so far, which promises well for India cinema sector, and should start reflecting in better consumer confidence. The two big US studios, Disney and Warner Bros, have announced exclusive theatrical releases for several big-ticket movies. We have upgraded on our revenue/EBITDA/PAT estimates on INOX and reiterate our ‘Buy’ rating with FY23 target price of Rs 490, based on a target EV/EBITDA multiple of 10.8x.
We prefer INOX over PVR on a relative basis though on an absolute basis both are doing well, but we would like to go with INOX due to low valuation as compared with PVR – as we believe that there is more scope for operating metrics improvement in the former. The comfortable balance sheet position of INOX is the other big positive. INOX executed a successful equity fund raising of Rs.250 cr at Rs.255 per share and part of this has been utilized for paying off debts and towards operating expenses. INOX is net debt free as on 30th June 2021.
Carparts.com
Formerly known as U.S. Auto Parts, Carparts.com (NASDAQ:PRTS) is an online auto parts retailer that has been transformed under new management. By consolidating its web brands under only the Carparts.com banner, the company has streamlined its business, and sales surged during the pandemic. The company is investing in technology and marketing, and just opened two new distribution centers. It also looks primed for continued growth, due to a semiconductor chip shortage in auto manufacturing that is boosting new and used car prices. Over the long term, the company is targeting 20%-25% revenue growth, meaning that Carparts.com is likely more than just a pandemic story.
Varonis Systems
- Market value: $6.3 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 1.53 (Buy)
Analysts say Varonis Systems’ (VRNS, $59.15) new strategic plan is already paying off.
The data security and analytics software firm found a nice niche. It protects unstructured data not stored in a database – an increasingly tasty target for hackers. What VRNS needed was a better business model.
And so, like many of its peers, the firm is transitioning away from selling software licenses to offering cloud-based subscriptions. Robust second-quarter revenue growth only proves the wisdom of the move, Wall Street analysts say.
“Varonis has carved out a dominant position in an important segment of the market,” writes Needham analyst Alex Henderson, who rates the stock at Buy.
And now thanks to the subscription model, “it is seeing larger deal sizes, an increasing shift to larger accounts, more subscriptions per transaction, and no lengthening of its sales cycle,” Henderson adds.
But where Varonis really stands out over the longer term is the fact that it’s “skating to where the puck is headed,” notes Jefferies analyst Brent Thill (Buy).
“VRNS understands the threat landscape is evolving from traditional file systems to newer cloud/software-as-a-service apps and is working to position itself to defend customer data wherever it resides,” Thill writes in a note to clients. “VRNS remains one of the most unique value propositions in cybersecurity.”
Of the 19 analysts covering the small-cap stock tracked by S&P Global Market Intelligence, 11 rate VRNS at Strong Buy, six say Buy and two call it a Hold. Their average target price of $73.17 gives shares implied upside of about 24% over the next 12 months or so.
California Resources Corp
California Resources is an oil and natural gas exploration and production (E&P) company with operations in California. It produces crude oil, natural gas, and natural gas liquids (NGL). It also operates a power plant that generates electricity from natural gas.
Somany Home Innovation Ltd.
The management is committed to increase its capital allocation towards fast growing profitable segments. SHIL has been scaling up its presence in consumer appliances and plastic pipes and fittings categories which are currently growing at very healthy rate. Company will enter into business which generates RoCE in range of 20%-25% in long run. Further, its robust supply chain and strategic outsourced manufacturing enables the company to offer a wider product basket with minimal capital expenditure.
As per the management, company has started its growth journey and strong earnings growth registered in Q1FY22 will be sustained in the long run.
We believe that its each business segment has huge growth potential and can outperform industry growth. Company is expected to register 200 to 300 bps incremental improvement in gross margin going ahead with volume growth and scalability. Thus, we hold our Positive view on SHIL and believe that it could be a compounder story in long term. We recommend this scrip with target price of Rs.611 with a 12 months investment horizon perspective. At current price, the scrip is valued at P/E multiple of 21.5x on FY23E EPS.
ACM Research
As a manufacturer of cleaning equipment for semiconductor wafers, ACM Research (NASDAQ:ACMR) is a “picks-and-shovels” play in the semiconductor industry. Investing in ACM Research provides exposure to a high-growth industry without exposure to the risk of commodity chip prices declining.
Additionally, ACM is an American company that conducts most of its business in China, giving investors a relatively safe investing method for gaining exposure to the Chinese market. ACM is one of the rare small-cap companies that offers both high growth potential and solid profitability.
Chart Industries
- Market value: $5.9 billion
- Dividend yield: N/A
- Analysts’ average recommendation: 1.50 (Strong Buy)
Chart Industries (GTLS, $162.07), which manufactures cryogenic equipment for industrial gases such as liquefied natural gas (LNG), is riding the world’s embrace of sustainable energy.
“In the context of the decarbonization megatrend, Chart is a one-of-a-kind play on the global shift to more gas-centric economies,” writes Raymond James analyst Pavel Molchanov, who rates GTLS at Outperform (the equivalent of Buy).
Molchanov says Chart enjoys upside potential from large LNG projects, as well “specialized products with a sustainability dimension,” including hydrogen fueling, curtailment of gas flaring and carbon capture.
Chart’s opportunities in specialized products are supported by its active roll-up strategy, the analyst notes. For example, the company recently acquired engineering firm L.A. Turbine for $80 million.
Between acquisitions and organic growth, the Street expects GTLS to generate average annual earnings per share (EPS) growth of almost 40% over the next three to five years.
If there’s a downside to GTLS’ hot growth prospects, it’s the stock’s signature volatility. Shares are up about 130% over the past 52 weeks – beating the S&P 500 by nearly 100 percentage points – but have done so with some wild price swings.
Be aware that 11.4% of GTLS shares outstanding are sold short. That means a sizable block of traders are betting against it. Anything greater than 10% is generally considered to be high short interest, which can contribute to increased volatility.
Nevertheless, as far as small-cap stocks go, the Street remains firmly bullish on this one, with a consensus recommendation of Strong Buy. Of the 18 analysts covering the stock tracked by S&P Global Market Intelligence, 12 call it a Strong Buy, four rate it at Buy, one says Hold and one has it at Sell.
Conclusion:
Small cap stocks are often seen as risky, but the returns over the last few years have been absolutely tremendous. One of our portfolio managers saw his best performing stock return almost 360% for the year – which is more than 12 times the S&P 500’s return. Another manager saw her favorite stock go up almost 300%! This returns are truly exceptional – especially considering these are microcap stocks which are even more volatile than small cap stocks.