Early stage companies that have huge growth potential and a large addressable market.
By definition, micro-cap stocks are stocks of companies that trade with a value between $50 million and $300 million. It goes without saying that investing in micro-cap stocks is a high-risk play. However, I would not hesitate to allocate a small portion of my portfolio toward these stocks.
Multiple returns are guaranteed if the company grows. It is important to note that some microcap stocks are far from purely speculative. This column focuses on three microcap stocks with decent trading fundamentals. Based on company- and industry-specific triggers, these stocks can rocket higher.
In terms of risk, microcap stocks in general are likely to face funding challenges. This is offset to some extent if the industry outlook is promising or the potential product has a large addressable market.
We have no specific target for the stocks discussed. However, if business developments remain positive, a five times return over the next five years would not be out of the question. Even with a small allocation, these small market cap companies can be a portfolio catalyst.
Yatra Online (YTRA)
We believe Yatra Online $YTRA-0.6% is one of the best small market cap stocks to buy. From its current level of $1.96, this stock has the potential to grow 10-fold over the next five years. This is due to the company's presence in the travel industry in one of the largest markets in the world.
Yatra Online operates as an online travel company with a strong presence in India. The company is the second largest player in this segment after MakeMyTrip $MMYT-0.4%
An important reason to focus on Yatra is its focus on business travel. The company has top clients with a retention rate of over 90%. As business travel accelerates, Yatra can benefit from this. In addition, the consumer business is likely to gain momentum due to the growing middle class in India.
From a financial perspective, Yatra reported EBITDA losses in 2019-21. However, in the last two financial years, the company has reported a profit at EBITDA level with margin improvement.
Yatra Online, Inc.
YTRAMediWound (MDWD)
MediWound $MDWD-3.5% is another potential winner among micro market cap stocks. The stock has trended down 14% over the past 12 months, and I see this as a golden buying opportunity.
To review, MediWound is a next-generation enzyme therapy focused on non-surgical tissue repair. The company's groundbreaking burn therapy has now been commercialized with a total addressable market of $300 million.
In addition, the company's enzyme therapy for wound care is already in Phase 3. Earlier this month, the Company received a positive recommendation from the European Medical Agency for Phase 3 trials. The Company believes the total addressable market for this therapy exceeds $2 billion.
MediWound also has a biotherapy for the treatment of non-melanoma skin tumors in Phase I/II trials. This candidate has a potential addressable market of US$1 billion. Given this offer, MDWD stock appears to be significantly undervalued. If the positive momentum holds, I would not be surprised to see multiple returns in the short term.
MediWound Ltd.
MDWDStealthGas (GASS)
Shares of StealthGas $GASS-1.6% are up 67% since the beginning of the year. However, GASS stock remains massively undervalued at a forward price-to-earnings ratio of 4.3.
StealthGas is a provider of marine transportation services to producers and users of liquefied petroleum gas around the world. For Q1 2023, the company reported revenues of $38.1 million. StealthGas also posted its highest quarterly earnings in a decade. With a strong liquidity position and a healthy backlog, I expect the bullish momentum to sustain.
It is also worth noting that the company maintains low leverage and 10 vessels remain unencumbered. This provides the company with financial flexibility to expand if charter rates remain attractive.
The outlook for the sector is positive as exports from the US and Middle East are predominantly to emerging economies. Further, global growth is likely to accelerate in 2024 compared to the current year. The valuation gap is likely to close in the coming quarters as StealthGas continues to deliver strong numbers.
I'll take a look at the $YTRA-0.6%. India could be a very interesting market in the coming years.