Small caps are risky for investors, but can pay richly, which is why investors need exposure. The question is the best approach, which is a cautious one, taking the time to watch and wait for the right stocks and not investing too much into any one. This article looks at five small-cap stocks with a higher-than-average potential to reward their investors due to the industry, position, results, and outlook.
If you are interested in small-cap stocks, they need to be on your watchlist.
Root, Inc. Gains Traction With DTC Insurance Business
[content-module:Forecast|NASDAQ: ROOT]Root, Inc. (NASDAQ: ROOT) is a small insurance carrier with a direct-to-consumer (DTC) business that is gaining traction. Among the critical details are a shift to profitability in 2024 that is sustained in 2025 and expected to continue.
Although revenue growth is expected to slow, the earnings forecast reported by MarketBeat is robust.
The ten analysts tracked forecast 50% earnings growth in 2026 and 2027, sufficient to justify the high valuation in 2025, and the forecast for revenue and earnings is likely too low.
The company is expanding its reach by entering new states, covering 35 at the end of Q1, and market penetration with partnerships, including those with Experian and Hyundai Capital America.
Analysts' trends are bullish for this stock. The number of analysts covering it has been steady for over a year, but the sentiment is firming toward a Buy, and the price target is increasing.
The consensus in late May forecasts a double-digit downside but is up more than 200% compared to last year, with the high-end range offering a double-digit upside.
Applied Digital Corporation: Shifting From Bitcoin to AI
[content-module:Forecast|NASDAQ: APLD]Applied Digital Corporation (NASDAQ: APLD) was once focused on Bitcoin and Bitcoin mining, but has since shifted its focus to include and be dominated by AI.
It is working to build a network of high-performance computing centers, including HPC data centers, beginning with its in-construction Ellendale Campus.
The campus is expected to start generating revenue by Q4 this year, which will be a win for the business.
The outlook is for revenue growth to sustain a moderate 30% pace for 2025 and 2026 as the shift takes hold and then to accelerate later in the decade.
The nine analysts tracked rate this stock unanimously as a Buy, and although the consensus price target was trimmed in Q2 2025, the stock is a bargain trading beneath their lowest target.
Astronics Corporation Rockets Higher on Results: Higher Highs Likely
[content-module:Forecast|NASDAQ: ATRO]Astronics Corporation (NASDAQ: ATRO) is an aerospace and defense contractor operating in two segments. Its primary business is aircraft components; testing is the secondary.
The business is growing due to resilient demand from its commercial and defense-related contracts, outperforming analysts' consensus estimates in 2025 and compounded by favorable guidance.
Critical details include record bookings and backlog at the end of Q1; potentially, the reaffirmed guidance is cautious.
Analysts' activity in this stock is tepid. MarketBeat tracks only one with coverage, a Hold rating and a forecast for substantial downside.
However, the institutional activity tells a different tale, with them owning more than 55% of the stock, buying on balance, and activity ramping to long-term highs in Q2 2025.
ThredUp Inc. Moves Up as AI Improves Results
[content-module:Forecast|NASDAQ: TDUP]ThredUp (NASDAQ: TDUP) is a poster child for what AI can do for a business.
Not only are costs coming down, but user counts are improving, and not just sellers, buyers, the ones that count are on the rise.
The net result is that revenue is improving, and the outlook was greatly enhanced. The company expects to revert to growth in 2025 and post a 10% advance by year’s end.
The analyst's trends for TDUP stock are part of the package regarding the stock price action. Dwindling coverage, declining sentiment, and price target reduction helped to put the stock at its long-term lows, and the opposite is true in 2025.
The trend in 2025 is improving sentiment, rising price targets supporting market action, and a significant spike in trading volume.
Aeva Technologies Sensing 100% Revenue Growth in 2025
[content-module:Forecast|NYSE: AEVA]Aeva Technologies (NYSE: AEVA) specializes in LiDAR systems and forecasts revenue growth of up to 100% in 2025.
The expected surge does not include a new partnership that expands its manufacturing capability and better positions it for the mass market, and so may be sustained in 2026.
AEVA analysts are responding favorably to the news, lifting their price targets and leading the market higher.
This move will likely be sustained due to the sharp increase in trading volume and institutional buying.
The institutions bought in Q1 and Q2 2025, with the Q2 activity spiking to a multi-year high and outpacing sellers by four to one.
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