January is starting off on something of a down note. Stocks have declined in the year’s first few trading sessions, with the Nasdaq leading the fall. There’s an acknowledgement of some known headwinds that may hit this year – inflation is rising and can’t be ignored, and in response, the Fed is likely to raise rates later this year.
The picture isn’t all bad. Francis Gannon, a chief investment officer from Royce Investment Partners, sees a bright spot emerging from the current environment: “The effects of inflation — we’re going to have volatility around [the Fed’s] taper. But in the same token, small caps are cheap on a relative basis, and that’s the opportunity here.”
Gannon points out that small cap stocks are entering the year with sound fundamentals – even though they have underperformed in recent months
“I think part of the opportunity here with small caps is the fact that they haven’t done as well as some of the other asset classes… Small caps today are about 8% below their most recent high and yet, fundamentals for many of the businesses continue to improve,” Gannon added.
At least some of Wall Street’s analysts would agree, as they’ve been picking small-cap stocks as potential gainers, with high growth potential in the year ahead.
We’ve used the TipRanks database to pull up the latest data on three of those small cap picks. These are Strong Buy equities, with upside potential starting at 70% and rising from there, market caps between $300 and $600 million, and they all have share prices below $10. Let’s take a look at the details.
Kaleyra (KLR)
First up is Kaleyra, a cloud computing company in the communications solution niche. The company offers ‘omnichannel business communications’ through a proprietary platform, which customers can use through the popular SaaS model, buying subscriptions for the service. Kaleyra platform gives access to services such as SMS, Chatbots, voice calling, and even WhatsApp, through mobile and desktop devices. The company counts names like Uber, Hyundai, and Flipkart among its customer base.
While KLR shares have not fared well this past year, with the price declining 53% from its March 2021 peak of $20, the company has been posting growth at both the top and bottom lines. In revenue, Q3 was a record quarter; the top line reached $84 million and registered 120% year-over-year growth. While the company ran a net loss, the adjusted net income, which turned positive in Q2, jumped sequentially from 1 cent per share to 7 cents per share.
Even better, the company raised its forward guidance for Q4 and the full year 2021. For the quarter, management expects between $87 million and $89 million in revenue; for the full year, between $264.7 million and $266.7 million.
In his comments for Northland Capital, 5-star analyst Michael Latimore details his belief that Kaleyra is entering a period of strong growth.
“We believe all geographies are performing well and KLR is seeing the seasonal tailwind during the holiday period so far. The India region is on fire, and KLR sells to 17 new unicorns created in India this year. 1H22 should have relatively easy comps… We expect the strong sequential revenue growth to enable expanding gross and EBITDA margins in 4Q. Last, our API industry price check continues to indicate pricing has been stable in the market, at least at the retail level,” Latimore opined.
To this end, Latimore rates KLR an Outperform (i.e. Buy), and his $29 price target indicates potential for ~219% share gains this year. (To watch Latimore’s track record, click here)
Wall Street seems to share Latimore’s view here, as the stock has 5 positive reviews to back its Strong Buy consensus rating. The shares are priced at $9.10 and have an average price target of $27.40, suggesting ~201% gains for 2022. (See KLR stock forecast on TipRanks)
Cantaloupe (CTLP)
The next small-cap stock we’ll look at, Cantaloupe, is heavily involved in retail – but in retail of the future. We all know that the way we shop is evolving. From the debut of credit cards in the 1950s, to debit cards in the 90s, to electronic payments in this past decade, we’ve seen the slow pullback in cash transactions in favor of electronic payment modes. Cantaloupe provides operational and payment platforms – both software and hardware – for the next development, of unattended retail kiosks. These are hardly new, per se; vending machines have been around for the better part of a century, but Cantaloupe’s tech is bringing them to another level.
The company’s products include ePort devices for cashless payment, software to track sales, analyze sales data, automate services, and coordinate product delivery, and the services needed to maintain and optimize the business. The company’s fingerprint can be found in a wide range of industries, from amusement & entertainment to hospitality to retail and quick serve restaurants to vehicle services. There are solutions available for customer engagement, payment processing, warehousing, even office coffee services. Cantaloupe’s services are at the center of an evolution in traditional vending machines to cashless unattended retail.
Cantaloupe reported its fiscal 1Q22 results this past November, and while the business model is strong, the quarter disappointed at the top and bottom lines. Total revenue came in at $45.8 million. This was up from $36.8 million in the previous quarter but just a shade under the analyst estimates. At the bottom line, EPS was reported at a 2-cent loss; this was after the previous quarter had seen earnings finally turn positive. Shares have dropped sharply since the release.
George Sutton, 5-star analyst from Craig-Hallum, sees the drop in price as an opportunistic entry point to this stock. In his view, Cantaloupe should benefit as economies reopen, people get out more – and find they want a cold drink while they are shopping. Taking a Coke as his metaphor for products offered on Cantaloupe-driven kiosks, Sutton believes that this company has plenty of opportunity ahead.
“We do believe Cantaloupe represents the top player in a relatively small, but growing slice of the electronic payment markets and continued evolution of management, [and] product offerings… we see the stock being an outperformer, particularly as Cokes become available to buy electronically wherever the consumer might be post-pandemic,” Sutton noted.
These comments back up Sutton’s Buy rating and $15 price target, which implies an upside of 83% in the next 12 months. (To watch Sutton’s track record, click here)
Turning now to the rest of the Street, other analysts are on the same page. With 3 Buys and no Holds or Sells, the word on the Street is that CTLP is a Strong Buy. The stock has a $14.67 average price target and a share price of $8.31, for a one-year upside potential of ~76%. (See CTLP stock analysis on TipRanks)
Blade Air Mobility (BLDE)
The third stock on our list lives in an up and coming niche – quite literally. Blade Air Mobility is an urban air transit company offering flexibility in scheduling, multimodal commuter travel, and private lounges at key locations. Blade offers short-hop helicopter flights in urban core areas around New York City, the Northeast, and on the West Coast, along with private chartered flights. The company makes the travel experience more personalized and more comfortable than commercial airlines can, albeit at price.
Blade is working to expand the urban air charter niche outside the realm of the rich, but its core service remains helicopter jumps between the NYC area airports. Fueling the company’s expansion, Blade has moved to acquire Trinity Air Medical, an air transport service dedicated to the time-sensitive, urgent priority deliver of transplant organs. This move cost Blade $23 million in cash, but Trinity brings with it a service worth $16 million in annual revenue. Furthermore, this past December, Blade announced its acquisition of Helijet, a Vancouver, Canada based helicopter service offering flights around the Pacific Northwest region of British Columbia. Helijet sees annual revenues of approximately US$15 million – and that is while operating at half of its pre-pandemic capacity. The purchase of Helijet’s scheduled passenger service cost Blade US$12 million up front.
While it is expanding, Blade has not forgotten its core area. The company is also expanding its NYC regional transit, and in November announced a new Newark-Manhattan helicopter route. Seats range from $95 to $195. Blade notes that NYC has three airports in the urban area, with 27 million people trying to move among them every day. Helicopter flights help to ease that traffic.
Since going public via SPAC last year, Blade has seen revenues rise sequentially. The fiscal 4Q21 results, of $20.3 million at the top line, was up 144% year-over-year. The company’s fiscal year of 2021 showed revenue of $50.5 million, for a 116% yoy gain. And better yet, the company has $305 million in liquid assets to fund further expansion efforts.
In short, Blade is growth story, as Deutsche Bank analyst Hillary Cacanando notes.
“Despite the emergence of the Omicron variant, Blade has not seen any negative impact to its businesses to date. In fact, its Short Distance business achieved 90% of pre-pandemic revenues in the Sep Q with its Blade Airport volumes reaching pre-COVID levels… We think the company is poised for multi-phase growth as it expands into new routes and pursues strategic infrastructure/customer acquisitions, while transitioning to electric vertical aircraft starting 2025. We continue to believe that Blade’s asset-light business model with partnerships with various OEMs derisks its reliance on the deployment schedule of any one manufacturer, while facilitating a seamless transition to EVA,” Cacanando explained.
In line with these comments, Cacanando puts a Buy rating on BLDE shares. His price target, at $15, indicates potential for ~103% upside from the current share price of $7.35. (To watch Cacanando’s track record, click here)
It’s not often that the analysts all agree on a stock, so when it does happen, take note. BLDE’s Strong Buy consensus rating is based on a unanimous 4 Buys. The stock’s $14 average price target suggests ~97% upside for 2022. (See BLDE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
