Small-cap stocks are currently attractive investments due to their significant undervaluation and substantial growth potential. As these smaller businesses grow, their stocks can provide higher returns than larger companies. Hence, investors could consider buying fundamentally strong small-cap stocks such as Docebo Inc. (DCBO), SIGA Technologies, Inc. (SIGA), and J.Jill, Inc. (JILL) with significant potential.
The World Bank expects global economic growth to steady at 2.6% in 2024, slightly increasing to 2.7% in 2025-26, aided by lower global inflation and careful central bank actions. The robust US economy, evident in a strong May jobs report, backs the case for investing in small-cap stocks, although they tend to be more volatile over time compared to larger companies.
Investing in small-cap stocks is attractive now because they are undervalued, trading than large-cap stocks, and benefit from the strong US economy, driving revenue and earnings. Additionally, the expected Federal Reserve interest rate cuts in September and a downward shift in the yield curve support a favorable environment for these stocks to grow.
Considering these conducive trends, let’s examine the fundamentals of the above-mentioned small-cap stocks.
Docebo Inc. (DCBO)
Headquartered in Toronto, Canada, DCBO operates as a learning management software company that provides artificial intelligence (AI)-powered learning platforms in North America, Europe, and the Asia-Pacific region. It offers a Learning Management System (LMS) to train internal and external workforces, partners, and customers. DCBO is valued at $1.14 billion by market cap.
In terms of the trailing-12-month levered FCF margin, DCBO’s 15.03% is 48.1% higher than the 10.15% industry average. Its 80.88% trailing-12-month gross profit margin is 63.3% higher than the 49.52% industry average. Likewise, the stock’s 0.81x trailing-12-month asset turnover ratio is 31.8% higher than the 0.62x industry average.
DCBO’s total revenue for the fiscal first quarter ended March 31, 2024, increased 24% year-over-year to $51.40 million. Its gross profit rose 24.2% from the previous year’s quarter to $41.48 million.
For the same quarter, its adjusted net income came in at $7.27 million and $0.23 per share, representing an increase of 125.4% and 155.6% year-over-year, respectively. Also, the company’s adjusted EBITDA grew 237.9% year-over-year to $7.47 billion.
DCBO’s revenue grew at a CAGR of 38.9% over the past three years. Likewise, its levered FCF grew at a CAGR of 48.6% over the past three years.
For the quarter ending June 30, 2024, DCBO’s EPS and revenue are expected to increase 59.2% and 20% year-over-year to $0.22 and $52.33 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, DCBO’s stock has gained 3.5% to close the last trading session at $37.51.
It’s no surprise that DCBO has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth, Sentiment, and Quality. Within the Software - Application industry, it is ranked #8 out of 134 stocks. To see DCBO’s Value, Momentum, and Stability ratings, click here.
SIGA Technologies, Inc. (SIGA)
Valued at $515.64 million by market cap, SIGA is a commercial-stage pharmaceutical company that focuses on health security-related markets. Its lead product is TPOXX, an oral formulation antiviral drug for the treatment of human smallpox disease caused by the variola virus.
In terms of the trailing-12-month gross profit margin, SIGA’s 78.13% is 36.6% higher than the 57.21% industry average. Its 59.31% trailing-12-month levered FCF margin is significantly higher than the 1.12% industry average. Also, the stock’s 61.78% trailing-12-month EBIT margin is considerably higher than the 1.52% industry average.
During the fiscal first quarter that ended March 31, 2024, SIGA’s total revenues increased 3.9% year-over-year to $25.43 million. Its operating income came in at $11.28 million, compared to an operating loss of $2.11 million in the year-ago quarter.
Similarly, the company’s net income stood at $10.28 million, compared to a loss of $918.26 thousand in the previous-year quarter. Also, its income per share was $0.14, compared to a loss per share of $0.01 in the previous year’s quarter.
SIGA’s net income grew at a CAGR of 7.2% over the past three years. Similarly, its EPS grew at a CAGR of 10.8% during the same period.
Street expects SIGA’s EPS for fiscal 2024 to increase 24.2% and 26.9% year-over-year to $1.18 and $177.56 million, respectively. Over the past nine months, the stock has gained 64.8% to close the last trading session at $7.35.
SIGA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B for Growth. It is ranked #15 out of 354 stocks in the Biotech industry. Beyond what we stated above, we also have given SIGA grades for Momentum, Stability, and Sentiment. Get all the SIGA ratings here.
J.Jill, Inc. (JILL)
Valued at $347.42 million by market cap, JILL is an omnichannel retailer of women’s apparel under the J.Jill brand. The company offers casual wear, athletic wear, loungewear, footwear, and accessories, including scarves and jewelry. The company markets its products through retail stores, websites, and catalogs.
In terms of the trailing-12-month net income margin, JILL’s 7.84% is 64.1% higher than the 4.78% industry average. Likewise, its 18.50% trailing-12-month EBITDA margin is 66.5% higher than the 11.11% industry average. Moreover, the stock’s 1.45x trailing-12-month asset turnover ratio is 45.5% higher than the 0.99x industry average.
JILL’s net sales for the fiscal first quarter that ended May 4, 2024, increased 7.5% year-over-year to $161.51 million. The company’s adjusted income from operations grew 12.6% from the year-ago value to $29.60 million. Its adjusted net income stood at $17.58 million or $1.22 per share, up 21% and 20.8% over the prior-year quarter. Also, its adjusted EBITDA was $35.65 million, a 11.7% growth from the prior year’s quarter. JILL’s revenue grew at a CAGR of 9.8% over the past three years.
Analysts expect JILL’s EPS for the quarter ending October 31, 2024, to increase 15% year-over-year to 0.90. Its revenue for the same is expected to grow 2.7% year-over-year to $154.10 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 56.4 to close the last trading session at $32.06.
JILL’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
JILL has an A grade for Quality and a B for Sentiment. Within the A-rated Fashion & Luxury industry, it is ranked #3 out of 60 stocks. To access JILL’s additional ratings for Growth, Value, Momentum, and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
DCBO shares were trading at $37.81 per share on Friday afternoon, up $0.03 (+0.08%). Year-to-date, DCBO has declined -21.85%, versus a 14.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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