Unearth hidden treasures in the high-risk, high-reward realm of small-cap stocks, where savvy investors can capitalize on market dips and ride the wave of growth, armed with diligent research and risk management strategies.
Waiting for a pullback on quality small-cap stocks can be an attractive investment strategy for risk-tolerant investors seeking higher returns. Small-cap stocks have historically outperformed their larger peers over a long time horizon, offering higher growth potential in exchange for some additional risk. However, it is essential to focus on quality stocks with strong fundamentals, as they are more likely to withstand market fluctuations and deliver consistent returns in the long run.
These under-the-radar companies can sometimes avoid much of the broader market chaos, making them appealing investment options during market dips. When investing in small-cap stocks, it is crucial to focus on research and make proper asset allocation decisions, as these stocks are highly volatile and susceptible to market risks. Investors should also consider their risk appetite before venturing into small-cap investments, as these stocks can experience significant declines during market downturns.
Buying the dip in quality small-cap stocks can be a rewarding strategy for investors with a higher risk appetite and a long-term investment horizon. By focusing on strong fundamentals and proper asset allocation, investors can maximize their returns and grow their wealth over time while navigating the inherent risks associated with small-cap investments.
With quality small-cap stocks in mind, here are three tech-focused companies that are worth researching further:
1. Asure Software (NASDAQ: ASUR)
The Austin, Texas-based company provides cloud-based human capital management (HCM) software solutions geared towards small and medium-sized businesses. Asure’s suite of services aims to help businesses cut costs by streamlining back-office operations across human resources, payroll, tax, employee attendance, HR compliance, and more. Since the start of 2023, Asure has inked partnerships with notable companies such as H&R Block (NYSE: HRB) and Intuit's (NYSE: INTU) TurboTax to expand their offerings and features aimed at helping small business boost their employee retention and recruitment efforts.
Asure Software saw impressive growth during 2022, which resulted in total revenue of $95.8 million or 26% year-over-year growth. Adjusted EBITDA for 2022 improved by $4.2 million to reach $11.8 million. The HCM provider’s 2022 results surpassed its own guidance by a significant margin and with SMBs continuing to look for ways to cut costs and get leaner, Asure’s products & services likely face another year ahead of strong demand and growth.
The strong growth trend appears to be continuing into 2023 so far, after the company reported impressive Q1 2023 results with revenue of $33.1 million, a 36% increase from Q1 2022. Recurring revenue reached $28.0 million, up 22% from the previous year, and net income stood at $0.3 million, a $3.4 million improvement year-over-year. The company also reported a gross profit of $24.4 million, marking a 58% rise from Q1 2022.
Following these strong results, Asure has updated its full year 2023 guidance, with expected revenue in the range of $111.0M - $113.0M, up from the previously estimated $105.0M - $107.0M. The company also provided Q2 2023 guidance, forecasting revenue between $25.0M - $26.0M, and an Adjusted EBITDA of $2.5M - $3.5M.
According to Nasdaq.com, Institutional investors continue to provide Asure with strong support with institutional ownership of over 65%, which equates to a total value of around $182 million, as of this writing. Furthermore, disclosures from the period ended March 31, 2023, showed Asure gained Barclays PLC (NYSE: BCS), Ritholtz Wealth Management, Jump Financial, LLC, and others as new institutional shareholders.
2. C3 AI (NYSE: AI)
Based out of Redwood City, CA, C3 AI describes itself as an enterprise AI app software company, which offers a comprehensive platform that allows businesses and organizations to develop, deploy and operate AI applications. C3 AI's platform features many industry-specific software-as-a-service (SaaS) AI apps that are geared toward helping enterprises begin to adopt new technologies into their operations.
Artificial intelligence has been a major theme through the first half of 2023. The rise of OpenAI’s ChatGPT and the incredible capabilities of new AI programs have led to a surge in demand. C3 AI has been a beneficiary of this demand, as investors look to scoop up AI-related investments. Even the U.S. Department of Defense has partnered with C3 AI to develop enterprise AI solutions for the U.S. Air Force’s critical mission readiness.
C3 AI is well-capitalized with a strong current ratio of 7.70, as a result of cash & equivalents holding of over $311 million and limited debt, as of January 2023. Nasdaq.com highlights C3 AI’s institutional ownership at nearly 42%, which has seen 80 new institutions add shares of C3 AI since the end of Q3 2022.
3. Vimeo (NASDAQ: VMEO)
Vimeo is a New York-based video software solutions provider. Using a SaaS model, Vimeo allows subscribers to create, collaborate and deploy video within its platform. From OTT streaming and monetization capabilities to AI-based video creation and editing, Vimeo's platform provides a comprehensive solution for major corporations, small businesses, solopreneurs, schools, and more.
In early May 2023, Vimeo reported first quarter 2023 financial results, which continued to demonstrate growth at the video software provider. While total revenue did see a slight 4% decrease y/y to $103.6 million, net losses saw a massive improvement of $25.9 million during the quarter to reach ($0.7 million). In addition, adjusted EBITDA improved by $13.6 million to reach $3.2 million during the first three months of 2023. Enterprise booking saw impressive growth of 62% y/y, thanks to new customers including BBC, UCLA, Johnson & Johnson (NYSE: JNJ), Warner Brothers, and more.
Over the past several months, Vimeo's share price has struggled but has continuously found support around the $3.25 level. Based on the financial results, Vimeo is seeing a growth shift to enterprises. This could help the company stabilize results, as enterprise customers tend to be more vested and longer-term focused than smaller organizations and individuals. If Vimeo can continue to build on its enterprise growth, its share price could see some improvement.
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