7 Cheap Small-Cap Stocks to Buy Before the Next Breakout

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Although most financial advisors will likely direct you to consider discounts among established blue chips, cheap small-cap stocks to buy present an enticing opportunity. True, smaller-capitalization companies carry greater risks, no doubt about it. At the same time, many of these businesses fly under the radar due to their relatively diminutive profile. Frankly, speculators can use this dynamic to their advantage.

Of course, going back to the risk-assessment situation, cheap small-cap stocks to buy are that way for a reason. Typically, either they’re inherently treacherous or their businesses have yet to command broader confidence. Still, on occasion, you can find small caps with demonstrably positive attributes such as balance sheet stability or higher-than-average profitability.

Here, the focus will be on the hidden gems of the market. The only ground rule I’ve established is these companies will feature (at time of writing) a market cap between $100 million and $1 billion. Therefore, you won’t find any establishments that are too big or too small.

With that out of the way, below are the cheap small-cap stocks to buy before the next breakout.

Data last updated: November 17, 2022 4:10 PM EST

Symbol
Company
Price
USNA Usana Health Sciences Inc $52.01
HZO Marinemax Inc $33.32
ZUMZ Zumiez Inc $23.33
CIX Compx International Inc $18.14
SWBI Smith & Wesson Brands Inc $11.81
ALKEF Alkane Exploration N $0.42
IDGXF Integrated Diagnostics Holdings Plc $0.63

Cheap Small-Cap Stocks: Usana Health Sciences (USNA)

Headquartered in Salt Lake City, Utah, Usana Health Sciences (NYSE:USNA) is a multi-level marketing (MLM) company focusing on nutritional products, dietary supplements and skincare products. Following the close of the Nov. 14 session, USNA featured a market cap of $982.4 million. On a year-to-date (YTD) basis, USNA dropped nearly 50% of equity value, making it a risky idea. Currently, investors can pick up shares for a little more than $53.

To be fair, MLMs carry plenty of controversy for their underlying business model. Based on high-level research, almost everybody loses money in MLMs. So, if you’re into environmental, social and governance (ESG) ideas, USNA probably isn’t right for you. That said, I want to be 100% objective regarding positive data that I see.

Financially, USNA stands out because it carries zero debt. This should give the underlying firm flexibility during these trying times. Also, USNA is relatively undervalued, trading for 12.9-times trailing-12-month (TTM) earnings. In contrast, the industry median price-earnings ratio is 17.5 times. Thus, if you can handle the unpleasantries of MLMs, this may be one of the cheap small-cap stocks to buy.

MarineMax (HZO)

Specializing in boat and yacht retail services, MarineMax (NYSE:HZO) caters to a wealthier-than-average clientele. Founded in 1998 and based out of Clearwater, Florida, MarineMax presently features a market cap of $742 million. Since the start of the year, HZO stock dropped over 41% of equity value. Still, in the trailing month, HZO gained nearly 17%.

Fundamentally, MarineMax doesn’t initially appear to be one of the cheap small-cap stocks to buy amid the consumer economy turmoil. However, keep in mind the exacerbation of the wealth gap by the coronavirus pandemic favors the rich — as in, the very people that make up MarineMax’s core customer base. Sure, it may be a bit unsavory for some ESG investors, but again, I’m just bringing you the data.

And yes, MarineMax brings plenty of compelling data. Primarily, HZO trades at 3.9 times forward earnings, ranked 95% below the competition. For this valuation, you get outstanding three-year revenue growth of 20.9% and excellent profitability with a net margin of 8.6%. Both metrics rank among the sector’s upper echelon, making HZO one of the best cheap small-cap stocks to buy.

Cheap Small-Cap Stocks: Zumiez (ZUMZ)

An American multinational specialty clothing store, Zumiez (NASDAQ:ZUMZ) provides apparel, footwear, accessories and hardgoods for young people. Founded in 1978 and based out of Lynnwood, Washington, Zumiez currently carries a market cap of $477 million. Against the January opener, ZUMZ dropped almost 51% of equity value. Shares closed the Nov. 14 session at $23.71.

To be clear, Zumiez faces consumer economy risks. Still, shares did gain 12% in the trailing month. That’s not going to dismiss the 49% equity market loss, but it may be a start — at least for speculators. Lighter-than-expected inflation data supports rumors that the Federal Reserve may ease up the gas pedal on monetary tightening. If so, that could instill some confidence in the wider economy, which may be a net positive for consumers.

Financially, ZUMZ is appealing as one of the cheap small-cap stocks to buy because of its above-sector-median rankings for longer-term revenue growth and net margins. Also, ZUMZ trades at 10.8 times forward earnings, favorably below the industry median of 14.7 times.

CompX International (CIX)

Headquartered in Dallas, Texas, CompX International (NYSEAMERICAN:CIX) provides lock components utilized in cabinet locks, ignition switches, office furniture, postal boxes, healthcare, vending and gas stations and exhaust systems. Presently, Compx features a market cap of $223 million. Since the start of the year, shares dropped 21% of equity value.

To be completely transparent, CIX lacks some of the immediate confidence-inspiring metrics found in other cheap small-cap stocks to buy. For instance, shares dipped 3% in the market over the trailing month despite broader enthusiasm recently in the equities space. Fundamentally, though, the rise in property crime earlier this year bolsters possible demand for CompX’s security products.

In the meantime, the company enjoys a very stable balance sheet highlighted by zero debt. Also, its Altman Z-Score stands at 9.54, reflecting extremely low bankruptcy risk. On a final note, CompX trades at 11.7 times TTM earnings, below 65% of the competition.

Cheap Small-Cap Stocks: Smith & Wesson Brands (SWBI)

Headquartered in Springfield, Massachusetts, Smith & Wesson Brands (NASDAQ:SWBI) represents a well-known self-defense specialist. Currently, the company commands a market cap of $551 million. Since the beginning of the year, SWBI dropped 33% of equity value. Nominally, SWBI qualifies as one of the cheap small-cap stocks to buy because of its $12 price tag.

Of course, SWBI generates plenty of controversy, particularly with this year being an election year. Therefore, if you want to skip to the next idea for cheap small-cap stocks to buy, please feel free to do so. However, for politically agnostic investors, SWBI brings plenty of positives to the table. For one thing, we must remember this industry hires plenty of workers, giving it some staying power despite political pressures.

Financially, SWBI features strengths across the board. It features a strong balance sheet with a favorable cash-to-debt ratio. As well, its three-year revenue growth rate of 27.6% and profitability metrics of a net margin of 17.9% rank among the sector’s elite. Finally, the market prices SWBI at 4.8 times trailing earnings, favorably below 96.5% of the industry.

Alkane Resources (ALKEF)

Founded in 1969 and based out of Australia, Alkane Resources (OTCMKTS:ALKEF) represents a multi-mine gold products. Its projects are primarily located in the central west region of New South Wales but extend throughout Australia. Presently, Alkane commands a market cap of $270 million. Since the start of this year, ALKEF dropped over 34% of equity value.

While representing one of the riskier names among cheap small-cap stocks to buy – the market prices ALKEF at 43 cents, after all – it’s fair to point out that shares gained 3% in the trailing month. No, this performance alone won’t move the needle much. Fundamentally, though, the underlying gold price has been on a tear. Likely, the precious metal presently responds to the fear trade (based on global economic concerns.)

Despite the obvious risks associated with the mining industry, Alkane delivers on the financial front. Specifically, it features excellent profitability metrics. For instance, its net margin stands at 42.6%, ranking above 93% of its rivals.

Cheap Small-Cap Stocks: Integrated Diagnostics (IDGXF)

Founded in 1979, Integrated Diagnostics (OTCMKTS:IDGXF) represents a high-quality consumer healthcare provider in the Middle East and Africa. Currently, Integrated features a market cap of $477 million. Since the beginning of the year, IDGXF dropped over 58% of equity value. Because of the steep loss, Integrated is one of the riskiest cheap small-cap stocks to buy.

Additionally, IDXGF lost nearly 23% of market value in the trailing month. Therefore, it’s one of the market ideas that only speculators should focus on. That said, Integrated may be a frontier opportunity. Currently, the company’s footprint covers Egypt, Jordan, Sudan and Nigeria. Over time, additional economic stability and development could boost IDXGF.

Financially, investors should find plenty to like about Integrated. For one thing, the company features a cash-to-debt ratio of 25.7 times, ranked better than 82% of the competition. As well, it commands excellent revenue and profitability, leading to a return on equity of 51.2%. Ranked above more than 92% of the industry, Integrated represents a very high-quality business.


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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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