The artificial intelligence (AI) frenzy continues to fuel the market. And, in an era where mega-cap AI players capture the bulk of the spotlight, small-cap stocks are largely being overlooked.
Here are two small-cap stocks that have outperformed the majority of the big names in the so-called “Magnificent Seven" group. Both companies are part of the benchmark Russell 2000 Index (RUT), and are making a significant impact in their respective industries.
Semiconductor equipment and materials manufacturer ACM Research (ACMR) is soaring as AI advances. Valued at $1.72 billion by market cap, ACMR stock is up 58.6% year-to-date, outperforming the S&P 500 Index’s ($SPX) gain of 10.1%.
Similarly, the clinical-stage biotech company Apogee Therapeutics' (APGE) positive clinical trial results this month paint a bright picture for its long-term prospects. Valued at $3.9 billion, Apogee’s stock is up 140.2% year-to-date, outperforming the broader market by a significant margin.
Wall Street rates both stocks a “strong buy,” with analysts forecasting up to 29% or more upside potential in the next 12 months. Let’s find out more.
ACM Research (ACMR)
Founded in 1998, ACM Research (ACMR) is not the longest-standing or most dominant player in the semiconductor market. However, the company plays an important role in improving semiconductor manufacturing processes and ensuring the production of high-quality semiconductors.
Its product portfolio includes cleaning equipment for various semiconductor manufacturing processes. While it may not appear significant, the company's products play an important role in the semiconductor manufacturing process by removing impurities and contaminants from silicon wafers. This guarantees the quality and dependability of semiconductor devices.
As AI advances and semiconductor demand rises, ACMR has emerged as an important supplier. This explains how revenue increased from $107 million in fiscal 2019 to $557 million in fiscal 2023. During the same period, the company's earnings increased from $0.33 to $1.63 per share.
In fiscal 2023, the company’s revenue increased a whopping 43.4% year-over-year to $558 million, driven by an 11% increase in total shipments. ACM's shipments include both completed and pending deliveries that will be recognized as revenue in the future. Adjusted earnings rose by 96.4% for the full year. Additionally, full-year gross margin jumped to 49.8% from 47.4% in 2022.
Looking ahead, management expects revenue to increase by 16% to 30%, reaching $650 million to $725 million in fiscal 2024. Meanwhile, analysts predict revenue to grow by 25.8% to $701.7 million. Furthermore, revenue and earnings are expected to rise by 23.5% and 26.7%, respectively, in fiscal 2025.
The stock is trading at 16 times forward 2025 estimated earnings and two times forward sales, which is reasonable given the potential growth of AI in the coming years.
The company ended the year with a total of $304.5 million in cash, cash equivalents, restricted cash, and time deposits.
Turning to Wall Street, ACMR stock is an overall "strong buy.” Following its Q4 results, Goldman Sachs upgraded ACMR stock to “buy” from “neutral.” Of the seven analysts covering ACMR, six have rated it a “strong buy” and one says it's a “moderate buy.”
Based on analysts’ mean price target of $37.81, ACMR stock has a potential upside of 22.2%. The Street-high target price of $40 implies the stock could rise as high as 29.2% from current levels.
Apogee Therapeutics (APGE)
Apogee Therapeutics (APGE) seeks to develop treatments for chronic obstructive pulmonary disease (COPD), atopic dermatitis (AD), asthma, and other inflammatory and immunologic conditions.
Being a clinical-stage biotech company has its advantages and disadvantages. While it may be risky to invest in an unprofitable growing business, a few successful drugs can turn around a biotech company’s fortunes.
In March, the company announced positive clinical trial results for a few of its candidates, which boosted the stock price. The company currently has no drugs on the market. As a result, it has not generated any revenue. At the end of 2023, it had total cash of $395.5 million, which it expects to last until the fourth quarter of 2026.
Of the six analysts covering Apogee stock, all of them have unanimously rated the shares a “strong buy.”
The average target price for APGE stock is $78.20, which implies an upside potential of 16.3% in the next 12 months. The Street-high target price of $95 implies the stock could jump as high as 41.2% from current levels.
Apogee’s stock gains this year might be appealing. Investors should keep in mind, however, that the company's drugs (if and when approved) may not generate a profit for several years. The success of Apogee's drug candidates is dependent on the results of clinical trials, which are subject to a variety of factors, including efficacy, safety, and regulatory requirements.
Furthermore, the biopharmaceutical industry is extremely competitive. As a result, thorough research should be conducted and risk tolerance should be evaluated before making an investment decision in Apogee Therapeutics stock.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
